Optimism and commitment: An elementary theory of bargaining and war

We propose an elementary theory of wars fought by fully rational contenders. Two parties play a Markov game that combines stages of bargaining with stages where one side has the ability to impose surrender on the other. Under uncertainty and incomplete information, in the unique equilibrium of the game, long confrontations occur: war arises when reality disappoints initial (rational) optimism, and it persist longer when both agents are optimists but reality proves both wrong. Bargaining proposals that are rejected initially might eventually be accepted after several periods of confrontation. We provide an explicit computation of the equilibrium, evaluating the probability of war, and its expected losses as a function of i) the costs of confrontation, ii) the asymmetry of the split imposed under surrender, and iii) the strengths of contenders at attack and defense. Changes in these parameters display non-monotonic effects.

The rise and fall of piecework–timework wage differentials: market volatility, labor heterogeneity, and output pricing

Based on detailed payroll data of blue collar male and female labor in Britain’s engineering and metal working industrial sectors between the mid-1920s and mid-1960s, we provide empirical evidence in respect of several central themes in the piecework-timework wage literature. The period covers part of the heyday of pieceworking as well as the start of its post-war decline. We show the importance of relative piece rate flexibility during the Great Depression as well as during the build up to WWII and during the war itself. We account for the very significant decline in the differentials after the war. Labor market topics include piecework pay in respect of compensating differentials, labor heterogeneity, and the transaction costs of pricing piecework output.