Coordination problem was RE: Help with a Minimum Wage Model

From: Rafal Smigrodzki (rafal@smigrodzki.org)
Date: Fri Apr 18 2003 - 14:00:29 MDT

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    Lee Corbin wrote:

    (Me)
    >>
    >> Barring contracts below a certain wage level will result in some
    >> transfer of income to the workers,
    >
    > Can you enumerate some of the assumptions behind this statement?
    > I don't know of any realistic ones, but enumerate them just the same
    > if you would.

    ### According to game theory, certain strategies are inherently unstable due
    to the coordination problem. Forced coordination, as in legislation to
    impose a monopoly bargaining entity in the form of labor unions, or to stop
    individual bargaining for wages, does solve the problem, which is why
    immediately after the imposition the law there is an increase in income to
    the beneficiaries of the law (as in unionized workers). In the long run, due
    to lower productivity, both the workers, the businesses, and the customers
    suffer, but this is a different story.

    Rafal

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