This note presents a new subgame perfect equilibrium in an infinitely repeated game, which has Basu's triadic model as the stage game (Oxford Econ. Pap., 38 (1986) 259). The payoff for the laborer is the same as in Basu's model. The equilibrium is more robust than the Naqvi and Wemhöner's solution (J. Dev. Econ. 47 (1995) 191), in the sense that the equilibrium does not require the same high degree of rationality; simple well-known strategies are applied, and both the landlord and the merchant are better off than in the stage game. In the equilibrium outcome, the merchant receives a share of the extra profit from the extortionary labor contract.

Magnus Hatlebakk

Senior Researcher; Coordinator: Poverty Dynamics