Uncertainty-driven symmetry-breaking and stochastic stability in a generic differential game of lobbying

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 ▲]

A Coalitional Theory of Unemployment Insurance and Employment Protection

in Economic Theory (2013), 52

This paper examines the role of coalition formation in the empirically observed negative correlation between employment protection and unemployment benefit. We study an economy composed of four groups of ... [more ▼]

This paper examines the role of coalition formation in the empirically observed negative correlation between employment protection and unemployment benefit. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria belonging to the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit. [less ▲]

On the long-run evolution of technological knowledge

in Economic Theory (2007), 30(1), 171-180

This paper revisits the debate about the appropriate differential equation that governs the evolution of knowledge in models of endogenous growth. We argue that the assessment of the appropriateness of an ... [more ▼]

This paper revisits the debate about the appropriate differential equation that governs the evolution of knowledge in models of endogenous growth. We argue that the assessment of the appropriateness of an equation of motion should not only be based on its implications for the future, but that it should also include its implications for the past. We maintain that the evolution of knowledge is plausible if it satisfies two asymptotic conditions: Looking forwards, infinite knowledge in finite time should be excluded, and looking backwards, knowledge should vanish towards the beginning of time (but not before). Our key results show that, generically, the behavior of the processes under scrutiny is either plausible in the future and implausible in the past or vice versa, or implausible at both ends of the time line.<P>(This abstract was borrowed from another version of this item.) [less ▲]