Wages and Utilities in a Closed Economy- A StrategicAnalysis

The broad objective of this paper is to initiate through a mathematical model, the study of causes of wage inequality and relate it to choices of consumption and the technologies of production in an economy. The paper constructs a simple Heterodox Model of a closed economy, in which the consumption and the production parts are clearly separated and yet coupled through a tatonnement process. The equilibria of this process correspond directly with those of a related Arrow-Debreu model. The formulation allows us to identify the combinatorial data which link parameters of the economic system with its equilibria, in particular, the impact of consumer preferences on wages. The Heterodox model also allows the formulation and explicit construction of the consumer choice game, where individual utilities serve as the strategies with total or relative wages as the pay-offs. We illustrate, through two examples, the mathematical details of the consumer choice game. We show that consumer preferences, expressed through modified utility functions, do indeed percolate through the economy, and influences not only prices but also production and wages. Thus, consumer choice may serve as an effective tool for wage redistribution.