I want to write a reserach paper, does game theory can be applied in Cobb-Douglas Production Model while determining the game for labor and capital (how much they can be used mean increase more labor or more capital or other choice). please brief me.
Game theory might enter into the determination of the productivities of capital and labor. Suppose (to use a reference at hand) we are investigating the relative productivities of family firms and professionally managed firms. Game theory might suggest (as a principle-agent problem) that professionally managed firms would be less productive. This could then be tested using a Cobb-Douglas approach as in e.g. Barbera, Francesco and Ken Moores, (2011) “Firm ownership and productivity: a study of family and non-family SMEs,” Small Business Economics, October.
Dear Muhammad,
I suggest that you take a look at Milgrom and Roberts 1996 "The LeChatelier Principle" in the American Economic Review, 86(1), pp. 173-179. In that article they considered how different prices and wages will affect a production function. They found that labor adjust more when capital is fixed which contrast with the principle. Although the article is more general, you can specialize it to Cobb-Douglas function if you like. A game can be set up between different restriction on the inputs yielding different profit-maximizing payoffs.
Dear Muhamad,
Game theory analyses the interaction between agents. Cobb-Douglas device focuses on the capital and labor mix to produce an outcome. Once a firm decides for a specific technology, the irreversibility or not of the investment plays a certain role in any possible outcome.
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