A stochastic differential game of capitalism

Chee Kian Leong and Weihong Huang ()

Journal of Mathematical Economics, 2010, vol. 46, issue 4, 552-561

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.

Keywords: Capitalism; Differential; games (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:46:y:2010:i:4:p:552-561

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