Abstract
Abstract We model the interaction between capitalists and entrepreneurs as a dynamic game. The open-loop Nash equilibrium and the closed-loop Nash equilibrium are distinguished. The purpose is to answer some questions that have arisen in the development of profit-led versus wage-led growth models. We find that the rate of profit and the discount rate as well as the responsiveness of the wage rate or aggregate consumption to the accumulation of capital are critical to explaining the change in regimes.
Highlights
A Markov-perfect Nash equilibrium (MPNE), on the other hand, is one in which the strategies of the players depend upon the information sets available at every stage of the dynamic game
We address some questions raised in the literature on profit-led versus wage-led growth models
In one Nash equilibrium, where strategies are independent of the state of the world, ‘low’ wages and ‘high’ consumption coexist with a ‘high’ rate of profit and a ‘high’ degree of patience, given a steady-state level of investment
Summary
Some conundrums have arisen in the development of profit-led versus wage-led growth models. Workers have been divided into those on the shop floor, on the one hand, and supervisors and managers, on the other The latter save and derive some of their income from property. One result is that the total effect of a decline in the wage share on aggregate demand depends upon the relative magnitude of the reactions of consumption and investment demand to changes in income distribution. Whether the negative effect of low wages on consumption or the positive effect on investment predominates is an open question (Stockhammer and Onaran 2013). A Markov-perfect Nash equilibrium (MPNE), on the other hand, is one in which the strategies of the players depend upon the information sets available at every stage of the dynamic game.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
