A game theoretic model of economic crises

Welburn, Jonathan William; Hausken, Kjell

doi:10.1016/j.amc.2015.05.093

Cited by 8 publications

(2 citation statements)

References 30 publications

(38 reference statements)

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“…Welburn and Hausken [15,16] theoretically analyzed the economic crises game, assuming six kinds of players, i.e., countries, central banks, banks, firms, households, and financial inter-governmental organizations. Players have strategies such as setting interest rates, lending, borrowing, producing, consuming, investing, importing, exporting, defaulting, and penalizing default.…”

Section: Game Theory Analysesmentioning

confidence: 99%

Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency

Wang

Hausken

2021

Games

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: A game between a representative household and a government was analyzed. The household chose which fractions of two currencies to hold, e.g., a national currency such as a Central Bank Digital Currency (CBDC) and a global currency such as Bitcoin or Facebook’s Diem, and chose the tax evasion probability for each currency. The government chose, for each currency, the probability of detecting and prosecuting tax evasion, the tax rate, and the penalty factor imposed on the household when tax evasion was successfully detected and prosecuted. The household′s fraction of the national currency, the government’s monitoring probability of the national currency, and the penalty factor imposed on the global currency, increased in the household′s Cobb Douglas output elasticity for the national currency. The household′s probabilities of tax evasion on both currencies increased in the government’s Cobb Douglas output elasticity for the national currency. The government’s taxation on both currencies decreased in the output elasticity for the national currency. High output elasticity for the national currency eventually induced the government to tax that currency more than the global currency. The household′s probability of tax evasion on the global currency increased in the government’s output elasticity for that currency. The household was less (more) likely to tax evade on the national (global) currency if the government valued taxation and penalty on the national (global) currency. The results are illustrated numerically where each of the eight parameter values were varied relative to a benchmark.

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Section: Game Theory Analysesmentioning

confidence: 99%

Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency

Wang

Hausken

2021

Games

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“…Welburn and Hausken (2015, 2017) model the strategies of countries, central banks, banks, firms, households and financial inter-governmental organizations in handling crises where countries may default. They find that contagion through credit or trade channels, or common macroeconomic conditions without contagion, can cause crises.…”

Section: Introductionmentioning

confidence: 99%

Assessing the 2010–2018 financial crisis in Greece, Portugal, Ireland, Spain, and Cyprus

Hausken

Welburn

2020

JES

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PurposeThe article develops a model to interpret the 2010–2018 financial crisis in Greece, Portugal, Ireland, Spain and Cyprus, and the loan programs from the IL (International Lender; i.e. the European Union, the European Commission, and the International Monetary Fund).Design/methodology/approachFor each country, an isoelastic utility with constant relative risk aversion is assumed. For the IL a Cobb Douglas utility is assumed with consumption, the GDP (Gross Domestic Product) to debt ratio, and market stability as inputs, accounting for time discounting. This article applies two methods to assess the empirics. The first method considers the IL's strategy as a whole over the 2010–2018 period. The second method assumes that the IL maximizes its utility in one period to determine its optimal loan, accounting for the empirics in that period, and the debt in the previous period.FindingsFor the first method, when the output elasticity in the IL's Cobb Douglas utility is high favoring consumption, the IL prefers offering a higher loan than its actual loan. Otherwise the IL prefers to offer no loan. The output elasticity at which the IL prefers to offer a loan is lowest for Greece, second lowest for Cyprus, third lowest for Portugal, and highest for Ireland and Spain. A high loan to Greece over a larger range of the output elasticity for Greece's consumption is supported by Greece being prioritized through the loan program. For the second method, the IL prefers to offer no loan to Greece which is too burdened with debt. Thus, the first method seems preferable, considering the entire duration of the crisis holistically.Originality/valueThe article offers a novel perspective of how to assess debt crises, enabling the IL to weigh various factors such as consumption, GDP, loan offered, and each country's debt to credit markets.

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Game Theoretic Modeling of Economic Systems and the European Debt Crisis

Welburn

Hausken

2015

Comput Econ

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A game theoretic model of economic crises

Cited by 8 publications

References 30 publications

Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency

Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency

Assessing the 2010–2018 financial crisis in Greece, Portugal, Ireland, Spain, and Cyprus

Game Theoretic Modeling of Economic Systems and the European Debt Crisis

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