Stability and the Economy: Cooperative Game Theoretic Implications for Economic Policy in a Dual-Sector Economy

Topher L Mcdougal

doi:10.5334/sta.ca

Abstract

<strong></strong>How does the structure of the economy affect the possibility for societal stability? This paper employs a cooperative game theory lens to explore possibilities for cooperation and chaos under various growth scenarios and assumptions of distributional equality in a hypothetical 2-sector economy (industrialists and agriculturalists). It suggests that maintaining distributional equality amongst agriculturalists is only undesirable under the assumption that the manufacturing sector exhibits positive and decreasing returns to scale; if increasing or negative manufacturing returns are the case, agricultural equality becomes an important policy goal in maintaining stability. In the particular case of a shrinking economy, peace can be preserved given (a) fairly equitable land distribution, and (b) a healthy industrial sector serving agriculture. In terms of aid policy, I suggest that, under decreasing industrial returns, more resources available to an economy can promote cooperative frameworks, but that such boosts will entail a switch to economies structured around the industrial sector. I conclude with a suggestion for testing the model.

Highlights

How does the structure of the economy affect the possibility for societal stability? Rapid economic growth of nearly any sort is routinely prescribed to prevent violent conflict
In the distributional policy analysis, I suggested that maintaining equitable assets amongst agriculturalists is only undesirable under the assumption that the manufacturing sector exhibits positive and decreasing returns to scale
If increasing8 or negative returns are the case with the manufacturing sector, agricultural equality becomes an important policy goal in ensuring stability in the cooperative model

Summary

RESEARCH ARTICLE

Stability and the Economy: Cooperative Game Theoretic Implications for Economic Policy in a Dual-Sector Economy. This paper employs a cooperative game theory lens to explore possibilities for cooperation and chaos under various growth scenarios and assumptions of distributional equality in a hypothetical 2-sector economy (industrialists and agriculturalists). It suggests that maintaining distributional equality amongst agriculturalists is only undesirable under the assumption that the manufacturing sector exhibits positive and decreasing returns to scale; if increasing or negative manufacturing returns are the case, agricultural equality becomes an important policy goal in maintaining stability. In terms of aid policy, I suggest that, under decreasing industrial returns, more resources available to an economy can promote cooperative frameworks, but that such boosts will entail a switch to economies structured around the industrial sector.

Introduction

Conclusion