Abstract:

Varying quantities of a single good can be produced using at least two and at most n factors of production. The problem of allocating the surplus is studied in a dynamic model with adaptive behavior. Representatives for the factors (referred to as players) make wage demands based on precedent and ignorant of each others utilities for this good. Necessary and sufficient conditions are provided under which the long-run equilibria coincide with the core allocations. Moreover, allowing for the possibility of mistakes by the players, it is shown that the unique limiting stochastically stable outcome maximizes the product of the players' utilities subject to being in the core of the technology.