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This article explores the evolution of a civilized exchange economy from an anarchistic environment. I analyze a model of stochastic jungle bargaining mechanism and show that it implements the Talmud Rule allocation (Aumann, R. J., and M. Maschler. 1985. “Game Theoretic Analysis of a Bankruptcy Problem from the Talmud.”  Journal of Economic Theory  36 (2): 195–213.) in subgame perfect equilibrium. This  Pareto-inefficient  allocation constitutes the initial endowment of a stable exchange economy and supports stable Walrasian equilibria, implying that civilized economies could evolve from a Hobbesian state of nature without social contract or regulator. The moral implications of these results are also briefly discussed.

From Jungle to Civilized Economy: The Power Foundation of Exchange Economy Equilibrium