Nash Equilibrium in evolutionary competitive models of firms and workers under external regulation

Abstract

The object of this paper is to study the labor market using evolutionary game theory as a framework.The entities of this competitive model are firms and workers, with and without external regulation.Firms can either innovate or not, while workers can either be skilled or not.Under the most simple model, called normal model, the economy rests in a poverty trap,where workers are not skilled and firms are not innovative.This Nash equilibria is stable even when both entities follow the optimum strategy in an on-off fashion.This fact suggests the need of an external agent that promotes the economy in order not to fall in a poverty trap.  &nbspTherefore, an evolutionary competitive model is introduced, where an external regulator provides loansto encourage workers to be skilled and firms to be innovative. This model includes poverty traps but also other Nash equilibria, where firms and workers are jointly innovative and skilled.  &nbspThe external regulator, in a three-phase process (loans, taxes and inactivity) achieves a common wealth,with a prosperous economy, with innovative firms and skilled workers.