Essays on Microeconomic Theory with Applications in Political and Resource Economics
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Essays on Microeconomic Theory with Applications in Political and Resource Economics By Yang Xie A dissertation submitted in partial satisfaction of the requirements for the degree of Doctor of Philosophy in Agricultural and Resource Economics in the Graduate Division of the University of California, Berkeley Committee in charge: Professor Brian D. Wright, Chair Professor Gérard Roland Professor David Zilberman Professor Gordon Rausser Spring 2016 Essays on Microeconomic Theory with Applications in Political and Resource Economics Copyright 2016 by Yang Xie 1 Abstract Essays on Microeconomic Theory with Applications in Political and Resource Economics by Yang Xie Doctor of Philosophy in Agricultural and Resource Economics University of California, Berkeley Professor Brian D. Wright, Chair This dissertation is an exhibition of applied microeconomic theory in political and re- source economics. As three examples, I investigate three different questions, respectively: Does polarization of beliefs always intensify political gridlock in collective decision making? Will input-efficiency improvement in water use, e.g., adoption of more-efficient irrigation technologies and investment in water-conveyance systems, definitely decrease the demand for water-storage capacities, e.g., dams and reservoirs? Is collectivism, rather than individual- ism, generally helping society overcome the collective action problem? Using the game-theory or stochastic-control approach, I theoretically challenge conventional wisdoms about these questions, and illustrate the empirical relevance of my challenges, qualitatively or quantita- tively, in different contexts, e.g., the Chinese transition from the planned economy, World War II and Operation Market–Garden, the irrigation water-inventory management of the California State Water Project, and the histories of collective action in China and Europe. i To my parents To my grandfather, Lien-Tsao Hsieh, whom I had never met – he began his career as a student in cotton cultivation in China, switched to history during the Second World War, started writing his Ph.D. dissertation at the University of South Carolina, Columbia in 1948, worked as a research assistant in the Bancroft Library of the University of California, Berkeley and journalist in San Francisco’s Chinatown from 1949 to 1950, returned to China in 1950 without finishing the dissertation, participated in the negotiation of the Korean Armistice Agreement as a member of the Chinese delegation to Panmunjom in 1952, and passed away in Beijing in 1962 To Shuang ii Contents Contents ii List of Figures iv List of Tables v 1 Introduction 1 2 Machiavellian Experimentation 3 2.1 Introduction .................................... 3 2.2 The Benchmark Model with Only Mutually Inclusive Payoff . 12 2.3 Analysis of the Benchmark Model ........................ 14 2.4 Contingent, Mutually Exclusive Payoffs ..................... 16 2.5 Comparative Statics ............................... 22 2.6 A Perspective of Organizational Welfare .................... 25 2.7 Robustness: Extending the Contingent, Mutually Exclusive Payoffs to the Big Bang Approach ................................ 27 2.8 Two Historical Illustrations ............................ 30 2.9 Concluding Remarks ............................... 44 3 Water-storage Capacities versus Water-use Efficiency: Substitutes or Complements? 46 3.1 Introduction .................................... 46 3.2 The Two-period, Stochastic Model ........................ 54 3.3 Analysis and Results ............................... 57 3.4 Implications .................................... 69 3.5 Extension with Multiple Periods ......................... 73 3.6 An Empirical Example with Numerical Illustrations . 74 3.7 Conclusion ..................................... 81 4 Culture and Collective Action 84 4.1 Introduction .................................... 84 iii 4.2 The Independent and the Interdependent Self and Types of Collective Action 86 4.3 The Basic Model ................................. 90 4.4 Extension to Multiple Players .......................... 94 4.5 Conclusion ..................................... 100 Bibliography 102 A Appendices of Machiavellian Experimentation 131 A.1 An Example of Equivalent Non-cooperative Games . 131 A.2 Proof of Proposition 1 .............................. 132 A.3 Proof of Proposition 2 .............................. 132 A.4 Extension: Contingent, Mutually Exclusive Payoffs with N Players . 133 A.5 The Intuition of Proposition 12 . 135 A.6 Details about Extending the Two-player Model to a Three-player Model . 136 A.7 Proof of Proposition 3 .............................. 140 B Appendices of Water-storage Capacities versus Water-use Efficiency: Substitutes or Complements? 143 B.1 Proof of Proposition 4 .............................. 143 B.2 Proof of Proposition 5 .............................. 146 ∗ ∗ B.3 Equivalence between W21(¯a; α) and W12(¯a; α) . 147 B.4 Resource Allocation between Water-storage Expansions and Water-use Effi- ciency Improvement ................................ 148 B.5 Analysis and Results for the Extended Model . 149 B.6 Specification of the Numerical Illustrations . 154 C Lien-Tsao Hsieh 谢琏造 謝璉造 158 C.1 A Brief Chronology ................................ 158 C.2 An Incomplete Bibliography . 161 iv List of Figures 2.1 An example of the model with only mutually inclusive payoff . 16 2.2 The typical case with large β ............................ 20 2.3 The typical case with small β ............................ 23 2.4 One typical case with moderate β .......................... 24 2.5 Another typical case with moderate β ....................... 25 2.6 An example of the decision of the organizational planner . 26 3.1 Operation of the dam in the two-period, stochastic model . 54 3.2 Overview of the impact of water-use efficiency on the marginal benefit of dam capacities ....................................... 60 3.3 An example of water-use efficiency increasing the optimal water storage . 64 A.1 The extensive form of the non-cooperative game . 132 A.2 The typical case of N = 3 with large β . 137 A.3 The case for two players with large β . 138 A.4 Typical cases for the first two players given different p3, the third player’s prior . 139 v List of Tables 2.1 Expected mutually inclusive payoff from the three options . 13 2.2 Expected mutually inclusive and weighted mutually exclusive payoffs from the three options ..................................... 18 2.3 Expected mutually inclusive and weighted extended mutually exclusive payoffs from the three options when the extended contingent, mutually exclusive payoffs are effective ...................................... 29 3.1 Specifications of the benefit of water release in the empirical example . 75 3.2 Specification of the empirical example ....................... 75 3.3 The empirical example: Responses to a 1% increase in water-use efficiency or water-storage capacities ............................... 76 3.4 The empirical example: Responses to a 5% increase in water-use efficiency or water-storage capacities ............................... 79 4.1 Payoffs of revolt (R) and institutional innovation (I) . 92 4.2 Payoff matrix for revolt (R) versus non revolt (NR) in the two player case . 95 4.3 Payoff matrix for institutional innovation (I) or not (NI) in the two player case . 96 vi Acknowledgments I must express here my deep debt to Professor Brian D. Wright, who has been my primary adviser since my first year at Berkeley. In these six years, his advice and encourage- ment, not only in research but also in life, are invaluable; his generosity and open–mindedness, not only on me but also on many other students, are touching. I would feel extremely honored if I could grow as a scholar and man of his style. I owe a lot to the intellectual exchange and deep collaboration with Professors Gérard Roland and David Zilberman, with whom I develop my research in political and resource economics, respectively. For example, Chapter 2 of this dissertation, with which I earned the job offer that I would eventually accept, started as a term paper for Professor Roland’s graduate course, Comparative Economics; Chapter 3 of this dissertation, with which I earned three job offers, is coauthored with Professor Zilberman. I have also been hugely benefit- ing from their guidance and support in research and life, and they are my models in this profession. I would also like to thank Professor Gordon Rausser, who hosted my qualifying exam in 2013 and is in my dissertation committee, for his consistent encouragement and help throughout the years. His graduate course, Quantitative Political Economic Analysis, guided me toward the research in political economics and was one of my favorite courses at Berkeley. My opportunity to study at Berkeley relied heavily on Professors Jing Cao, Yingyi Qian, and Chong-En Bai, who were my main references when I applied for Ph.D. programs in 2009 as an undergraduate at the School of Economics and Management, Tsinghua University. I would like to thank them again for their earlier help and also their lasting encouragement and influence throughout these years. I also highly appreciate the growing of our intellectual exchanges. In my application for Ph.D. programs I also benefited from the recommendations by Professors Charles Engel, Radu Vrănceanu, and Hongbin Li. I would also like to thank them, as well as Professor Qing Liu, for their help and encouragement since 2009. I must thank my coauthor, Yinxi Xie, for our collaboration since 2012, when he was an exchange undergraduate