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Seoul Journal of Economics - Vol. 14 , No. 4
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Seoul Journal of Economics - Vol. 14, No. 4, pp. 1-27
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2001

Bargaining and Walrasian Equilibrium in Simple Production Economies
Sang-Young Sonn
Korea Information Society Development Institute, 1-1 Juam-Dong, Kwachun, Kyunggi-Do, 427-710, Korea, Tel: 02-570-4310 (sonnsye@kisdi.re.kr)

JEL Classification: C78, D51

Abstract

We consider a class of production economies in which there are two goods, leisure and a consumption good, and there are a large number of consumers and firms, modelled as continua. We formalize a bargaining procedure in the labor market, and examine the relation between the bargaining equilibria and the Walrasian equilibria of the underlying production economy. We show that every bargaining equilibrium allocation coincides with a Walrasian equilibrium allocation in the underlying economy. So, a Gale-type result is obtained for our production economies.

Acknowledgments

The author is grateful to Professor William Thomson and two referees for valuable comments and advice.

References
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2. Gale, D. “Bargaining and Competition Part I: Characterization.” Econometrica 54 (1986a): 785-806.
3. Gale, D. “Bargaining and Competition Part II: Existence.” Econometrica 54 (1986b): 807-18.
4. Gale, D. “A Simple Characterization of Bargaining Equilibrium in a Large Market without the Assumption of Dispersed Characteristics.” CARESS Working Paper No. 86-05, University of Pennsylvania, 1986c.
5. Hicks, J. R. Value and Capital. 2nd edition, Clarendon Press, Oxford, 1946.
6. McLennan, A., and Sonnenschein, H. “Sequential Bargaining as a Non-cooperative Foundation for Walrasian Equilibrium.” Econometrica 59 (1991): 1395-424.
7. Osborne, M. J., and Rubinstein, A. “Bargaining and Markets.” Academic Press, San Diego., 1990.
8. Rubinstein, A., and Wolinsky A. “Equilibrium in a Market with Sequential Bargaining.” Econometrica, 53 (1985): 1133-50.
9. Shaked, A., and Sutton J. “Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model.” Econometrica, 52 (1984): 1351-64.
 

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