NASH EQUILIBRIUM IN CONTROL-UNREGISTERED EMPLOYMENT DECISIONS UNDER INCENTIVE AND PUNISHMENT STRATEGIES

Abstract

Unregistered employment, which has occupied the world economic agenda since the 1970s with the ILO's Kenya report, has become an important problem that needs to be solved as much as unemployment in countries. Policy makers and social planners try to intervene in the wage bargaining processes between workers and employers through a control mechanism and implement policies to prevent unregistered employment. For this reason, in addition to the routine inspections of companies by auditors, they implement penalties and incentives for registered employment. Thus, while the state achieves its goals of increasing tax and premium revenues, they also aim to increase the productivity of workers with the motivation of having a registered job. However, a conflict arises here between the social planner's control function and the employer's low-cost, high-profit behavior motivation. The article deals with this conflict issue and tries to determine the Nash Equilibrium of the parties by analyzing the employer's registered or unregistered employment options against the social controller's punishment and incentive practices in a mixed strategy 2x2 game model. By analyzing the game model, the "best response functions" of the parties were obtained and the best response probabilities of the social planner and the employer against each other were determined through Nash Equilibrium. The effectiveness of penalties and incentives against unregistered employment was analyzed according to counter behaviors.

Keywords

• Informal Employment
• Informality
• Social Planner
• Social Audit
• Game Theory
• Nash Solution

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