The Prisoners' Dilemma in the Invisible Hand: An Analysis of Intrafirm Productivity

Abstract

This paper attempts to show that it is useful to view productivity as a prisoners' dilemma problem, that conventions are alternative solutions to the prisoners' dilemma, that effort conventions are usually nonoptimal, and that a shock is necessary in order to shift from one nonoptimal solution to another. Within this framework the invisible hand does not produce a Pareto optimal result. It is consistent with any number of nonoptimal effort conventions.