Embedding Cooperation in General-equilibrium Models

John Roemer

No 2098, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

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 (search for similar items in EconPapers)
JEL-codes: D50 D60 D62 D70 D91 E19 H21 H23 H41 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2017-08
New Economics Papers: this item is included in nep-gth, nep-hpe, nep-mic, nep-ore, nep-pbe and nep-res
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