A stochastic differential game of capitalism

Chee Kian Leong; Weihong Huang

doi:10.1016/j.jmateco.2010.03.007

A stochastic differential game of capitalism

Chee Kian Leong, Weihong Huang

Research output: Journal Publication › Article › peer-review

16 Citations (Scopus)

Abstract

We develop a stochastic differential game of capitalism to analyze the role of uncertainty. In the deterministic game, the firm's rent is completely taxed away and the firm stops investing completely. In the stochastic game, the government does not tax the firm's rent completely. The firm posts a positive rate of investment if the firm's rent exceeds the labor's income. Although the cooperative solution is indeterminate, cooperation is always Pareto optimal compared to the non-cooperative Markovian Nash equilibrium. For individual rationality, we apply a payoff distribution procedure based on Yeung and Petrosyan (2006) to derive a subgame-consistent solution.

Original language	English
Pages (from-to)	552-561
Number of pages	10
Journal	Journal of Mathematical Economics
Volume	46
Issue number	4
DOIs	https://doi.org/10.1016/j.jmateco.2010.03.007
Publication status	Published - Jul 2010
Externally published	Yes

Keywords

Capitalism
Differential games

ASJC Scopus subject areas

Economics and Econometrics
Applied Mathematics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jmateco.2010.03.007

Cite this

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title = "A stochastic differential game of capitalism",

abstract = "We develop a stochastic differential game of capitalism to analyze the role of uncertainty. In the deterministic game, the firm's rent is completely taxed away and the firm stops investing completely. In the stochastic game, the government does not tax the firm's rent completely. The firm posts a positive rate of investment if the firm's rent exceeds the labor's income. Although the cooperative solution is indeterminate, cooperation is always Pareto optimal compared to the non-cooperative Markovian Nash equilibrium. For individual rationality, we apply a payoff distribution procedure based on Yeung and Petrosyan (2006) to derive a subgame-consistent solution.",

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AU - Leong, Chee Kian

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N2 - We develop a stochastic differential game of capitalism to analyze the role of uncertainty. In the deterministic game, the firm's rent is completely taxed away and the firm stops investing completely. In the stochastic game, the government does not tax the firm's rent completely. The firm posts a positive rate of investment if the firm's rent exceeds the labor's income. Although the cooperative solution is indeterminate, cooperation is always Pareto optimal compared to the non-cooperative Markovian Nash equilibrium. For individual rationality, we apply a payoff distribution procedure based on Yeung and Petrosyan (2006) to derive a subgame-consistent solution.

AB - We develop a stochastic differential game of capitalism to analyze the role of uncertainty. In the deterministic game, the firm's rent is completely taxed away and the firm stops investing completely. In the stochastic game, the government does not tax the firm's rent completely. The firm posts a positive rate of investment if the firm's rent exceeds the labor's income. Although the cooperative solution is indeterminate, cooperation is always Pareto optimal compared to the non-cooperative Markovian Nash equilibrium. For individual rationality, we apply a payoff distribution procedure based on Yeung and Petrosyan (2006) to derive a subgame-consistent solution.

KW - Capitalism

KW - Differential games

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U2 - 10.1016/j.jmateco.2010.03.007

DO - 10.1016/j.jmateco.2010.03.007

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EP - 561

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

IS - 4

ER -

A stochastic differential game of capitalism

Abstract

Keywords

ASJC Scopus subject areas

UN SDGs

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