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Economic Growth and Redistribution: Evidence from Dynamic Games

This work is based on a differential game proposed by Kelvin Lancaster. The game between two agents called workers and capitalists is based on the accumulation and redistribution of benefits among social classes concluding that cooperative outcomes outperform non-cooperative. This approach determines the optimum solution in a centralized economy as a non-cooperative game and cooperative Pareto solutions forced by the social planner. We compare the model solution in a decentralized economy, where rates economic growth are converging to a steady state and obtain high rates of inflation, and higher levels of consumption. Alternatively, the cooperative solution found between agents can be confirmed. A capitalist game continues to monitor the cooperative principle, in which the maximum benefit is obtained through cooperation.