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

Topher L McDougal

Abstract

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.

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How to cite: McDougal, T.L. 2013. Stability and the Economy: Cooperative Game Theoretic Implications for Economic Policy in a Dual-Sector Economy. Stability: International Journal of Security and Development 2(2):41, DOI: http://dx.doi.org/10.5334/sta.ca

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This article has been peer reviewed (journal peer review policy).

Published on 19 August 2013.