Market Correlation and Property Rights
(with X. Li)
Journal of Institutional and Theoretical Economics , 2010, 166(3), 426-438.
Abstract: This paper examines the origins of property rights in the presence of production uncertainty. Since stealing others' possessions is permitted under anarchy, the winner is able to enjoy the lion's share of total outputs produced by all parties, and this generates a diversification effect, since the random outputs are polled together. Taking this effect into account, we characterize the subgame-perfect equilibrium for our two-stage game. Specifically, the emergence of property rights is shown to depend on players' incentives to fight, variances, and market correlations. The model predicts that property rights are more likely to emerge when market correlations increase.
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Federations, Coalitions, and Risk Diversification
(with A.S. Mahmud)
Public Choice , 2008, 137(1), 403-426
Abstract: We investigate the optimal size of a nation in the context of a portfolio choice model under uncertainty. With an equal sharing rule, we characterize the equilibrium coalition structure, which is shown to depend on income, risks, and market correlations. Specifically, coalitions are likely to form among regions with similar variance in income and among regions with negative market correlations. The conditions that yield a grand coalition, two sub-coalitions of different sizes, and singletons are derived. Moreover, the equilibrium coalition structures are also examined when geographical contiguity is required.
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Migration, Family and Risk Diversification
(with K.P. Chen and S.F. Leung)
Journal of Labor Economics , 2003, 21(2), 353-380.
Abstract: This article proposes a formal model of migration in which workers are heterogeneous and markets are stochastically correlated. We derive and characterize the optimal migration pattern of a family. We show that migration can take place even when migrants earn less abroad and, surprisingly, when earnings in the foreign country are riskier for every member of the family. Moreover, it may well be an optimal arrangement to have only dependents migrate, thus rationalizing the recent dependent-oriented migration flows from places like Hong Kong and Taiwan. We provide some evidence in support of our theory.
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Unsystematic Risk and Coalition Formation in Product Markets
(with M. Brown)
International Journal of Industrial Organization ,2002, 20(3), 313-338.
Abstract: We study the conjecture that increasing market volatility leads to larger coalitions in an oligopoly. Here, coalition formation decisions are made in a noncooperative game by risk averse firms. They use a sequential offer-counter-offer procedure initiated by Selten and Rubinstein. We find that the conjecture generally fails in a small oligopoly whose firms play a unanimity game, but it is validated in an oligopoly that allows open membership. However, it is valid in a small oligopoly if market volatility is sufficiently high, whatever the rule of membership.
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Uniqueness of Equilibrium for Smooth Multistage Concave Games
(with M. Brown and K. Yamamoto)
Games and Economic Behaviors , 1991, 3(4), 393-402.
Abstract: Smooth, noncooperative, multistage, concave games are formulated so that a new uniqueness condition-based on the Poincaré-Hopf theorem-can be applied. The new condition is the weakest to appear in the uniqueness literature. The uniqueness subgame perfect equilibrium is obtained and examples are given.
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A Model of Growth and Trade in Time-Phased Economies
(with Winston Chang)
International Economic Review , 1986, 27(3), 783 - 802.
Abstract:
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Cost Savings, Wages and the Growth of the Firm
Economic Journal , 1986, 96, 798-807.
Abstract:
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