Economic Dimensions of the Cyprus Dispute

Abstract

Most economic analysis relies heavily on the concepts of preferences, constraints and conventions (or rules of conduct) which govern the interaction of economic agents. Loosely speaking, the term preferences is used as shorthand for one’s aims. Firms are often assumed to maximize profits, consumers their utility, unions some function of the wage rate and employment, principals their share of output and agents their own share of output and leisure. These actions proceed in the context of constraints and rules of conduct. A consumer can only spend what income he or she earns through work, accumulated savings or borrowing. A firm will operate in the context of a given technology. Unions may maximize, say, the wage bill subject to the demand for labour by firms. All this activity presumes a set of rules of conduct: the exchange of labour for wages, for instance, is driven by self-interest and is voluntary. In models where generations overlap an assumed judicial system ensures that agreed upon transfers between generations actually take place. In the absence of this enforcement mechanism exchange between generations, i.e., the young and the old, grinds to a halt.