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 | |
| Publication status | Published - Jul 2010 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth
Free Keywords
- Capitalism
- Differential games
ASJC Scopus subject areas
- Economics and Econometrics
- Applied Mathematics
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