PLAN OF THE PART
This part of the book will outline a model of a market economy that draws together the concepts of biform games, with noncooperative search and matching at the first stage, with considerable solutions and cooperative decisions by an array of coalitions at the second stage, drawing also on the bargaining theory developed in Chapters 6 and 7 of McCain (2013). In the spirit of backward induction, we will begin in Chapter 11 with a discussion of bargaining as a basis for the imputation of coalitional value creation to individual payoffs. That chapter will also discuss the selection of a joint strategy for a coalition that resembles a business firm. Chapter 12 will discuss the formation of coalitions, first from the (cooperative) perspective of the core of the game, and subsequently with respect to the (noncooperative) search-and-matching processes to form new links. Chapter 13 will reconsider the theory of monopoly and monopsony and its policy implications, and will revisit the theory of employment policy from the point of view of the model constructed in Chapters 11 and 12. Chapter 14 reconsiders some issues on the determination of wages. In Chapter 15 the political process itself is considered, again from the point of view of an extended bargaining theory. Legislation is considered as a two-stage process, with bargaining at the first stage and voting at the second stage. This is, of course, a theory of representative government, since it relies in indirect links via elected representatives, among citizens many of whom are not sufficiently densely linked to permit direct cooperative action. Contradictions and sources of failure in this model of the political process are considered. In all of these discussions bargaining power plays a central role.
- 1. Shapley and Shubik (1969) model externalities in the closely related non-transferable utility games, but externalities do not seem to generate inefficiencies in their model.
- 2. Bargaining theory is introduced, and while the term “noncooperative bargaining” is used, the model applied is Nash’s cooperative bargaining model - not his noncooperative “demand game” (for example, Mortensen and Pissarides, 1994).
- 3. In informal terms, a tree is a set of points with links that may be direct or indirect but do not form any cycles, and a forest is (of course!) a set of discrete trees.
- 4. For a mathematically more formal definition see McCain (2013, p. 131).
- 5. On the possibility of an empty core, see McCain (2013, pp. 130-31).