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Uncertainty-driven symmetry-breaking and stochastic stability in a generic differential game of lobbying ; ; et al in Economic Theory (2022) We study a 2-players stochastic differential game of lobbying. Players invest in lobbying activities to alter the legislation in her own benefit. The payoffs are quadratic and uncertainty is driven by a ... [more ▼] We study a 2-players stochastic differential game of lobbying. Players invest in lobbying activities to alter the legislation in her own benefit. The payoffs are quadratic and uncertainty is driven by a Wiener process. We consider the Nash symmetric game where players face the same cost and extract symmetric payoffs, and we solve for Markov Perfect Equilibria (MPE) in the class of affine functions. First, we prove a general sufficient (catching up) optimality condition for two-players stochastic games with uncertainty driven by Wiener processes. Second, we prove that the number and nature of MPE depend on the extent of uncertainty (i.e the variance of the Wiener processes). In particular, we prove that while a symmetric MPE always exists, two asymmetric MPE emerge if and only if uncertainty is large enough. Third, we study the stochastic stability of all the equilibria. We notably find, that the state converges to a stationary invariant distribution under asymmetric MPE. Fourth, we study the implications for rent dissipation asymptotically and compare the outcomes of symmetric vs asymmetric MPE in this respect, ultimately enhancing again the role of uncertainty. [less ▲] Detailed reference viewed: 68 (1 UL)The Irreversible Pollution Game ; ; Zou, Benteng E-print/Working paper (2022) We study a 2-country differential game with irreversible pollution. Irresability is of a hard type: above a certain threshold level of pollution, the self-cleaning capacity of Nature drops to zero ... [more ▼] We study a 2-country differential game with irreversible pollution. Irresability is of a hard type: above a certain threshold level of pollution, the self-cleaning capacity of Nature drops to zero. Accordingly, the game includes a non-concave feature, and we characterize both the cooperative and non-cooperative versions with this general non-LQ property. We deliver full analytical results for the existence of Markov Perfect Equilibria. We first demonstrate that when pollution costs are equal across players (symmetry), irreversible pollution regimes are more frequently reached than under cooperation. Second, we study the implications of asymmetry in the pollution cost. We find far nontrivial results on the reachability of the irreversible regime. However, we unambiguously prove that, for the same total cost of pollution, provided the irreversible regime is reached in both the symmetric and asymmetric cases, long-term pollution is larger in the symmetric case, reflecting more intensive free-riding under symmetry. [less ▲] Detailed reference viewed: 44 (3 UL)Uncertainty-driven symmetry-breaking and stochastic stability in a generic differential game of lobbying ; ; et al E-print/Working paper (2021) We study a 2-players stochastic differential game of lobbying. Players have opposite interests; at any date, each player invests in lobbying activities to alter the legislation, the continuous state ... [more ▼] We study a 2-players stochastic differential game of lobbying. Players have opposite interests; at any date, each player invests in lobbying activities to alter the legislation, the continuous state variable of the game, in her own benefit. The payoffs are quadratic and uncertainty is driven by a Wiener process. We prove that while a symmetric Markov Perfect Equilibrium (MPE) always exists, (two) asymmetric MPE only emerge when uncertainty is large enough. In the latter case, the legislative state converges to a stationary invariant distribution. We fully characterize existence and stochastic stability of the legislative state for both types of MPE. We finally study the implications for rent dissipation asymptotically. We show in particular that while the average rent dissipation is lower with asymmetric equilibria relative to the symmetric, the former yield larger losses at the most likely asymptotic states for large enough but moderate uncertainty. [less ▲] Detailed reference viewed: 134 (18 UL)Stochastic petropolitics: The dynamics of institutions in resource-dependent economies ; ; et al in European Economic Review (2021) We investigate the link between resource revenues volatility and institutions. We build a stochastic differential game with two players (conservatives vs . liberals) lobbying for changing the institutions ... [more ▼] We investigate the link between resource revenues volatility and institutions. We build a stochastic differential game with two players (conservatives vs . liberals) lobbying for changing the institutions in their preferred directions. First, uncertainty surrounds the dynamics of institutions and the resource revenues. Second, the lobbying power is asymmetric, the conservatives’ power being increasing with resource revenues. We show the existence of a unique equilibrium in the set of affine strategies. We then examine to which extent uncertainty leads to more liberal institutions in the long run, compared to the deterministic case. We finally explore the institutional impact of volatility using a database covering 91 countries over the period 1973–2005. Focusing on financial liberalization, we find that as oil revenue volatility increases, liberalization goes down. This result is robust to different specifications and sample distinctions. [less ▲] Detailed reference viewed: 56 (8 UL)Optimal Switching from Competition to Cooperation: A Preliminary Exploration ; ; Zou, Benteng in Haunschmied, Josef; Kovacevic, Raimund; Semmler, Willi (Eds.) et al Dynamic economic problems with regime switches (2020) In this paper, we tackle a generic optimal regime switching problem where the decision making process is not the same from a regime to another. Precisely, we consider a simple model of optimal switching ... [more ▼] In this paper, we tackle a generic optimal regime switching problem where the decision making process is not the same from a regime to another. Precisely, we consider a simple model of optimal switching from competition to cooperation. To this end, we solve a twostage optimal control problem. In the first stage, two players engage in a dynamic game with a common state variable and one control for each player. We solve for open-loop strategies with a linear state equation and linear-quadratic payoffs. More importantly, the players may also consider the possibility to switch at finite time to a cooperative regime with the associated joint optimization of the sum of the individual payoffs. Using theoretical analysis and numerical exercises, we study the optimal switching strategy from competition to cooperation. We also discuss the reverse switching. [less ▲] Detailed reference viewed: 39 (0 UL)A Pedagogical Note on Risk Sharing Versus Instability in International Financial Integration: When Obstfeld Meets Stiglitz ; Zou, Benteng in Open Economies Review (2019) The pure risk sharing mechanism implies that financial liberalization is growth enhancing for all countries as the world portfolio shifts from safe low-yield capital to riskier high-yield capital. This ... [more ▼] The pure risk sharing mechanism implies that financial liberalization is growth enhancing for all countries as the world portfolio shifts from safe low-yield capital to riskier high-yield capital. This result is typically obtained under the assumption that the volatilities for risky assets prevailing under autarky are not altered after liberalization. We relax this assumption within a simple two-country model of intertemporal portfolio choices. By doing so, we put together the risk sharing effect and a well defined instability effect. We identify the conditions under which liberalization may cause a drop in growth. These conditions combine the typical threshold conditions outlined in the literature, which concern the deep characteristics of the economies, and size conditions on the instability effect induced by liberalization. [less ▲] Detailed reference viewed: 100 (5 UL)Mean growth and stochastic stability in endogenous growth models ; ; Zou, Benteng in Economics Letters (2018) Detailed reference viewed: 119 (7 UL)Stochastic stability of endogenous growth: Theory and applications ; ; Zou, Benteng E-print/Working paper (2015) We examine the issue of stability of stochastic endogenous growth. First, stochastic stability concepts are introduced and applied to stochastic linear homogenous differen- tial equations to which several ... [more ▼] We examine the issue of stability of stochastic endogenous growth. First, stochastic stability concepts are introduced and applied to stochastic linear homogenous differen- tial equations to which several stochastic endogenous growth models reduce. Second, we apply the mathematical theory to two models, starting with the stochastic AK model. It’s shown that in this case exponential balanced paths, which characterize optimal trajectories in the absence of uncertainty, are not robust to uncertainty: the economy may almost surely collapse at exponential speed even though productivity is initially arbitrarily high. Finally, we revisit the seminal global diversification endogenous growth model (Obstfeld, 1994): taking into account stochastic stability calls for a redefinition of the mean growth concept, which leads to revisit the established wisdom on the growth effect of global diversification. [less ▲] Detailed reference viewed: 97 (8 UL)Institutional dynamics under revenue volatility and revenue-dependent lobbying power: A stochastic differential game approach ; ; Zou, Benteng E-print/Working paper (2015) We propose an analysis of institutional dynamics under uncertainty by the means of a stochastic differential lobbying game with two main ingredients. The rst one is uncertainty inherent in the ... [more ▼] We propose an analysis of institutional dynamics under uncertainty by the means of a stochastic differential lobbying game with two main ingredients. The rst one is uncertainty inherent in the institutional process itself. The second one has to do with the crucial role of resource windfalls in economic and political outcomes, shaping lobbying power and adding a second source of uncertainty. First, we focus on uncertainty surrounding the institutional process only and show that its main consequence is the existence of multiple equilibria with very distinct features: symmetric equilibria which lead the economy to reach almost surely a stable pointwise institutional steady state in the long run even in the absence of the retaliation motive put forward by the deterministic lobbying literature, and asymmetric equilibria which only show up under uncertainty and do no allow for stochastic convergence to a steady state. Second, when accounting for the two sources of uncertainty together with resource revenue-dependent lobbying power, we show that revenue volatility tends to stabilize institutional dynamics compared to the deterministic counterpart. [less ▲] Detailed reference viewed: 75 (8 UL)Stochastic stability of endogenous growth: The AK case ; Zou, Benteng E-print/Working paper (2014) This note studies the stochastic stability of the standard AK growth model un- der uncertain output technology. Capital accumulation follows a stochastic lin- ear homogenous differential equation. It’s ... [more ▼] This note studies the stochastic stability of the standard AK growth model un- der uncertain output technology. Capital accumulation follows a stochastic lin- ear homogenous differential equation. It’s shown that exponential balanced paths, which characterize optimal trajectories in the absence of uncertainty, are not robust to uncertainty. Precisely, it’s demonstrated that the economy almost surely col- lapses at exponential speed even though productivity is initially arbitrarily high. [less ▲] Detailed reference viewed: 49 (5 UL) |
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