A stochastic differential game of capitalism

Chee Kian Leong, Weihong Huang

Research output: Journal PublicationArticlepeer-review

16 Citations (Scopus)


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 languageEnglish
Pages (from-to)552-561
Number of pages10
JournalJournal of Mathematical Economics
Issue number4
Publication statusPublished - Jul 2010


  • Capitalism
  • Differential games

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics


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