A stochastic differential game of capitalism

Chee Kian Leong, Weihong Huang

Research output: Journal PublicationArticlepeer-review

13 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 languageEnglish
Pages (from-to)552-561
Number of pages10
JournalJournal of Mathematical Economics
Volume46
Issue number4
DOIs
Publication statusPublished - Jul 2010
Externally publishedYes

Keywords

  • Capitalism
  • Differential games

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics

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