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.