CFDP 2098

Author(s): John E. Roemer

Publication Date: August 2017

Pages: 51

Abstract: 

Humans cooperate a great deal in economic activity, but our two major models of equilibrium – Walrasian competitive in markets and Nash in games – portray us as only non-cooperative. In earlier work, I have proposed a model of cooperative decision making (Kantian optimization); here, I embed Kantian optimization in general equilibrium models and show that ‘Walras-Kant’ equilibria exist and often resolve inefficiencies associated with income taxation, public goods and bads, and non-traditional firm ownership, which typically plague models where agents are Nash optimizers. In four examples, introducing Kantian optimization in one market – often the labor market – suffices to internalize externalities, generating Pareto efficient equilibria in their presence. The scope for efficient decentralization via markets appears to be significantly broadened with cooperative behavior.

Keywords: 

Kantian optimization, Cooperation, General equilibrium, Market socialism, Global emissions control, Worker-owned firms, Externalities, Public goods

JEL Classification Codes: D50, D60, D62, D70, D91, E19, H21, H23, H41

JEL Classification Codes: D50D60D62D70D91E19H21H23H41