From Jungle to Civilized Economy: The Power Foundation of Exchange Economy Equilibrium

Schwarz Mordechai E. ()
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Schwarz Mordechai E.: Department of Economics and Management, The Open University of Israel, 1 University Road, Raanana43537, Israel

The B.E. Journal of Theoretical Economics, 2019, vol. 19, issue 2, 14

Abstract: This article explores the evolution of a civilized exchange economy from an anarchistic environment. I analyze a model of stochastic jungle bargaining mechanism and show that it implements the Talmud Rule allocation (Aumann, R. J., and M. Maschler. 1985. “Game Theoretic Analysis of a Bankruptcy Problem from the Talmud.” Journal of Economic Theory 36 (2): 195–213.) in subgame perfect equilibrium. This Pareto-inefficient allocation constitutes the initial endowment of a stable exchange economy and supports stable Walrasian equilibria, implying that civilized economies could evolve from a Hobbesian state of nature without social contract or regulator. The moral implications of these results are also briefly discussed.

Keywords: bankruptcy; contest; anarchy; jungle (search for similar items in EconPapers)
JEL-codes: D63 D71 D74 H0 O10 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/bejte-2017-0085

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