Tesfatsion, Leigh

Journal of Economic Dynamics and Control Vol. 25 no. Nos. 3-4 (March 2001): 419-457.

This study undertakes a systematic experimental investigation of the relationship between market power and labor market structure (concentration and capacity conditions) when workers and employers preferentially match based on past worksite experiences. For each tested market structure, workers and employers repeatedly seek preferred worksite partners based on continually updated expected utility, engage in efficiency-wage worksite interactions modeled as prisoner's dilemma games, and evolve their worksite behaviors over time. A key finding is the presence of strong learning and network effects. Each tested market structure maps into a "spectral" distribution of observed interaction networks exhibiting one dominant attractor (frequent network pattern) with one or two weaker attractors (less frequent network patterns). Market structure is strongly predictive for the relative market power of workers and employers across all network attractors, but the magnitudes of the market power levels attained by workers and employers vary widely across the network attractors. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/tnghome.htm

JEL Classification: C6, C7, D4, D8, E2, E6, J2, J6, L1

Keywords: Labor market, evolutionary game, partner choice, endogenous network formation, Agent-based test bed