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Essays of Game Theory and Its Applications in Political Economy

  • Author(s): Fan, Xinyu
  • Advisor(s): Board, Simon A
  • et al.

The dissertation consists of three essays on the formation of organizational structures and cultural practices. In many cases, the implementation of desirable institutions cannot be relied on the good hearts of the individuals in power. Game theoretical analysis thus deepens our understanding of whether benevolence can be achieved out of the most extreme cases of self-interest, and more importantly, how.

The first chapter studies the inevitable path towards centralization after power struggles. Power struggles are modeled as iterative coalition formation in which players use their power to form alliances, eliminate others, and split resources, when formal commitment is impossible. Players can strategically give away power, i.e., burn power to invite new alliances or buy off key members to survive. The stability of a power structure relies on the existence of a vested interested group that has regime changing abilities, but chooses not to do so because the weak outsiders cede power to the strong insiders to deter regime changes. We show the Iron Law of Oligarchy holds that regardless of the immediate directions of power shifts, power often ends up more concentrated to a few elite members. The model explains the reproduction of a ruling minority over and over again after various regime changes.

The second chapter (joint work with Feng Yang) discusses how a mid-tier officer strategically promotes his subordinates to build up reputation when the big boss is watching him. We show that promotion can be a signaling tool for the superior officer, where he can strategically postpone promoting the subordinate to shift blame and enhance his own reputation. Furthermore, with top-down personnel control, the promoter has extra incentives to shirk, knowing that information manipulation is always an option in the future.

The third chapter (joint work with Lingwei Wu) explores the economic origins of gender-biased social norms, in the context of foot-binding, a painful custom that persisted in historical China. We present a unified theory to explain the key stylized facts about foot-binding, and investigates its historical dynamics driven by a gender-asymmetric mobility system in historical China (the Civil Examination System, Keju).

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