Thursday, July 2, 2015

#tbt Shapley & Shubik 1964 Ownership and the Production Function

Before the modern era of competitive game theory -- what one of my mentors refers to as the "neoclassical bicycle repair shop" -- game theory was a tool with which to challenge neoclassical dogma about how individuals behaved at the microeconomic level. Lloyd Shapley, in particular, revolutionized cooperative game theory with what came to be known as the Shapley value -- a quantitative measure of whether or not to take a particular role in a game. This form of game theory -- what might by today's standards of competitive game theory resemble a sort of meta-game theory -- sought to investigate the structural outcomes of certain incentive structures and resource constraints.

This paper by Shapley and Martin Shubik builds upon this by calling into question ownership structures themselves. Drawing in part on stylized facts about certain modes of production and resource distribution, Shapley and Shubik derive explanations for emergent ownership structures from tribal communism, feudalism, industrialism, etc. on the basis of labor and capital productivity. It's a really clever model, and provides some pretty decent inspiration with regards to modeling alternative economic systems outside of the paradigm of competition.

Download the paper here