Abstract
The article explains the origins of the gender pay gap as a Nash equilibrium of a game with incomplete information about women's work at home and in the marketplace based on the earlier results of Chichilnisky (2005, 2008a, 2008b). Expectations about women's lower market wages leads to the over utilisation of women in the household, and this, in turn, leads to lower productivity and lower wages for women in the marketplace. The situation is rational, but (as the prisoner's dilemma) it is generally Pareto inferior. Inequity at home breeds inequity in the marketplace and reciprocally, leading to a persistent gender gap. With learning by doing, at high levels of skill there is a Pareto superior equilibrium where men and women share efforts equally at home and receive the same pay in the marketplace, firms enhance their profits, and there is additionally more welfare at home. Updated Family Law and appropriate contracts can help resolve this Pareto inferior situation as well as increase productivity and economic growth in the economy as a whole (Pyle, 1990).
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