The array of coalitions actually formed in an economy as conceived here will reflect two considerations, one noncooperative and one cooperative. The noncooperative influence is the search and matching process by which new informational links are formed. This is unavoidably noncooperative, since cooperative decisions cannot be made until the links exist. As a result, it may allow for inefficient phenomena such as involuntary unemployment, unfilled positions, and externalities. The cooperative consideration is a process of recontracting or competitive offering among those who, being linked, are potentially members of common coalitions. This process gives rise to some of the conditions familiar from neoclassical economics, such as the value of marginal product as the upper limit of an individual employee’s wage and the zero profit condition in full competitive equilibrium.
- 1. The definition of the rational successor function and some other formal details including proof of existence and uniqueness are given in the appendix to this chapter.
- 2. See the appendix to this chapter for details.
- 3. There is a large literature on the implications of insider interests in macroeconomics. See, for example, Lindbeck and Snower (2001). Their approach, however, is somewhat ambiguous as to whether decisions are made cooperatively or noncooperatively.
- 4. This interpretation differs from that in the received literature which treated J/U as a measure of the slackness of labor markets, but, as we will see in Chapter 14, the two indices agree qualitatively.