Two Differential Games Between Rent-Seeking Politicians and Capitalists: Implications for Economic Growth

Abstract

We comparatively study two differential games between politicians and capitalists in terms of reducing rent-seeking distortions and stimulating economic growth. These two games imply two relationships — top-down authority and rational cooperation — between politicians and capitalists. In the current context, we prove that cooperation leads to faster growth than does authority, and simultaneously satisfies individual rationality, group rationality, Pareto efficiency and sub-game consistency. We thus show that setting a bargaining table between capitalists and politicians may create desirable incentives for reducing rent-seeking distortions, developing the spirit of capitalism and stimulating economic growth.