Monday, December 3, 2012

For this Wednesday's class

We will begin talking about Prisoner's Dilemma - the repeated version.  I've written up some notes on that.  I would be good for you to read those through before class.  Then depending on how much time is left we'll start talking about Efficiency Wages a la Shapiro and Stiglitz.  I will make reference to the acutal paper, Equilibrium Unemployment as a Worker Discipline Device, instead of using M&R's discussion of the paper.  (Note to access the actual paper from off campus you need to use the Campus VPN.)  I have written up some notes on that paper too, in an attempt to cast it in a similar framework to the Prisoner's dilemma stuff and my prior essay on the economics of time.

I want to also clarify a point I made in class today about earning an economic rent in teaching the course.  In a typical market the marginal seller earns no economic rent and just receives his or her opportunity cost.  Sellers with lower opportunity cost are termed inframarginal sellers.  They earn rents.  So in normal market it is not that there are no economic rents.  It is only that the marginal seller doesn't get any.

In the Shapiro and Stiglitz paper, all the workers are identical except that some are employed and others are unemployed.  The employed workers do strictly better than the unemployed ones.  So the employment workers get an economic rent and the unemployed workers are "involuntarily" unemployed.  That is not how we think normal markets work, but it is why unemployment can serve as a discipline device.

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