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Cooperative economic growth

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  • Dai, Darong

Abstract

We comparatively study optimal economic growth in a simple endogenous growth model and under two different games, i.e., dynamic sequential game and cooperative stochastic differential game, between a representative household and a typical self-interested politician. Sequential equilibrium solution is derived by applying Backward Induction Principle and corresponding optimal economic growth rate is endogenously determined. Moreover, cooperative equilibrium solution is established with group rationality, individual rationality and sub-game consistency requirements fulfilled, and it is further confirmed that the representative household will save more, and the self-interested politician will tax less, thereby leading to much faster economic growth, when compared to those of the sequential equilibrium solution.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 33 (2013)
Issue (Month): C ()
Pages: 407-415

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Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:407-415

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Endogenous growth; Endogenous savings; Capital income tax; Sequential equilibrium; Cooperative stochastic differential game; Political economy;

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