Endogenous Shocks and Evolutionary Strategy: Application to a Three-Players Game

Abstract

An evolutionary game with three players — trade unions, financial investors and firms — is presented where each player has a short-term and a long-term maximizing strategy at hand. The short-term strategy maximizes current payoffs without taking into account benefits from future cooperation while long-term strategies depend on the cooperative behavior of the other players. We first determine equilibria arising in the static game and determine under which conditions long-term cooperation may emerge. We then endogenize the stochastic environment, making it subject to the strategies selected and show how additional equilibria and strategy cycles arise in an evolutionary set-up.

The authors wish to thank participants at the 9th International Symposium for Dynamic Games, 2000, and an anonymous referee for very helpful comments. Any remaining errors are ours. The views expressed in this paper are those of the authors, and do not necessarily represent those of the ECB, the University of Nanterre or the University Paris VIII.