Reference : Uncertainty-driven symmetry-breaking and stochastic stability in a generic differenti...
Scientific journals : Article
Business & economic sciences : Quantitative methods in economics & management
Uncertainty-driven symmetry-breaking and stochastic stability in a generic differential game of lobbying
Boucekkine, Raouf mailto [Rennes Business school]
Fabien, Prieur mailto [University of Monpolier]
Ruan, Weihua mailto [Purdue University - Purdue]
Zou, Benteng mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM) >]
Economic Theory
Yes (verified by ORBilu)
[en] Political lobbying ; Symmetric versus asymmetric equilibrium ; Stochastic differential games ; Stochastic stability ; Social cost of lobbying
[en] 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.

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