A way of explaining unemployment through a wage-setting game

We investigate a duopsonistic wage-setting game in which the firms have a limited number of workplaces. We assume that the firms have heterogeneous productivity, that there are two types of workers with different reservation wages and that a worker's productivity is independent of his type. We show that equilibrium unemployment arises in the wage-setting game under certain conditions, although the efficient allocation of workers would result in full employment.Unemployment, Bertrand-Edgeworth, wage-setting games

A Theory of Natural Addiction

Economic theories of rational addiction aim to describe consumer behavior in the presence of habit-forming goods. We provide a biological foundation for this body of work by formally specifying conditions under which it is optimal to form a habit. We demonstrate the empirical validity of our thesis with an in-depth review and synthesis of the biomedical literature concerning the action of opiates in the mammalian brain and their effects on behavior. Our results lend credence to many of the unconventional behavioral assumptions employed by theories of rational addiction, including adjacent complementarity and the importance of cues, attention, and self-control in determining the behavior of addicts. Our approach suggests, however, that addiction is "harmful" only when the addict fails to implement the optimal solution. We offer evidence for the special case of the opiates that harmful addiction is the manifestation of a mismatch between behavioral algorithms encoded in the human genome and the expanded menu of choicesgenerated for example, by advances in drug delivery technology faced by consumers in the modern world.Consumer/Household Economics,

Quality Uncertainty as Resolution of the Bertrand Paradox

We show that in a homogeneous-good duopoly market with quality uncertainty and constant unit costs, the Bertrand paradox (i.e., marginal cost pricing) can be avoided.oligopoly, endogenous preferences, threshold utility

Neural networks would \u27vote\u27 according to Borda\u27s Rule

Can neural networks learn to select an alternative based on a systematic aggregation of conflicting individual preferences (i.e. a `voting rule\u27)? And if so, which voting rule best describes their behavior? We show that a prominent neural network can be trained to respect two fundamental principles of voting theory, the unanimity principle and the Pareto property. Building on this positive result, we train the neural network on profiles of ballots possessing a Condorcet winner, a unique Borda winner, and a unique plurality winner, respectively. We investigate which social outcome the trained neural network chooses, and find that among a number of popular voting rules its behavior mimics most closely the Borda rule. Indeed, the neural network chooses the Borda winner most often, no matter on which voting rule it was trained. Neural networks thus seem to give a surprisingly clear-cut answer to one of the most fundamental and controversial problems in voting theory: the determination of the most salient election method

On Forchheimer's Model of Dominant Firm Price Leadership

We show that in a simple price-setting game with one large firm and many small firms the large firm does not accept the role of the price leader