Embedding Cooperation in General-Equilibrium Models

52 Pages Posted: 11 Aug 2017

See all articles by John E. Roemer

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Date Written: August 7, 2017

Abstract

Humans cooperate a great deal in economic activity, but our two major models of equilibrium – Walrasian competitive in markets and Nash in games – portray us as only non-cooperative. In earlier work, I have proposed a model of cooperative decision making (Kantian optimization); here, I embed Kantian optimization in general equilibrium models and show that ‘Walras-Kant’ equilibria exist and often resolve inefficiencies associated with income taxation, public goods and bads, and non-traditional firm ownership, which typically plague models where agents are Nash optimizers. In four examples, introducing Kantian optimization in one market – often the labor market – suffices to internalize externalities, generating Pareto efficient equilibria in their presence. The scope for efficient decentralization via markets appears to be significantly broadened with cooperative behavior.

Keywords: Kantian optimization, Cooperation, General equilibrium, Market socialism, Global emissions control, Worker-owned firms, Externalities, Public goods

JEL Classification: D50, D60, D62, D70, D91, E19, H21, H23, H41

Suggested Citation

Roemer, John E., Embedding Cooperation in General-Equilibrium Models (August 7, 2017). Cowles Foundation Discussion Paper No. 2098. Available at SSRN: https://ssrn.com/abstract=3016532 or http://dx.doi.org/10.2139/ssrn.3016532

John E. Roemer (Contact Author)

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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