Modeling of Ability, Effort, and now, `Effort Capacity': A Candidate General Equilibrium Structure

Abstract

Ideally, agents' effort choices are premised on the parameters of the states of the world that they, agents encounter. Suppose the emergence of the states of the world that are strictly preferred by agents, namely the `equilibrium' states, Ξ^{∗}. In said states, rational agents choose the supremum of their effort, e^{∗}. Denoting the supremum of agents' effort, their `effort capacity', ξ^{∗}, the equilibrium states are parameterized by a fixed point, e^{∗}=g(ξ^{∗})=ξ^{∗}. Suppose the emergence of the states of the world that are not strictly preferred by agents, namely the `off-equilibrium' states, Ξ. If agents act rationally, necessarily their effort choices, e deviate from e^{∗}, as such are not fixed points.

Keywords: Reference-Dependence, Effort Capacity, Probability Measure, Borel Space, Fixed Point Theorem, Expectations

JEL Classification: D61, D81, J24