 Chinese  Exchange student from Peking University  Not first time to US, But first time as a student  Please point out my problems not only during this presentation but daily life  Hope to become friends with all of you Yu Shi 9/27/12 Econ 400M

 Special Style: Socialist market economy  To make most of the market, lots of state-owned businesses are privatized  Definition of a state-owned business › owned by the government, but is run by an individual › most of the profit should be given to the government, and the government handles with the entire deficit, while the manager has no economics responsibility › What the manager can do? Yu Shi 9/27/12 Econ 400M

 Players?  Strategies? › Government › Manager  Legal?  Illegal?  How many times?  What do they know? Yu Shi 9/27/12 Econ 400M

 Promising situation (the basic profit reflects on a pay-off of +2).  Not in a key industry as energy or resources etc.  the manager is not good at operating a company, and treasures leisure more than the output by working (the extra profit the manager can make by working hard is +0.5, which should be added to the government’s pay-off; while giving up the leisure ends up with a -1 for the manager). Yu Shi 9/27/12 Econ 400M

 The government never know what the manager is doing.  The buyer knows exactly the true value of the business.  The government sells the business based on the profit reported.  The government are willing to see the business running in a more efficient way (the pay-off for government is +2). Yu Shi 9/27/12 Econ 400M

 The buyer of a company will replace the manager (pay-off is -1for manager if being fired) unless he works hard and reports all profit.  Specially, for the case (S&R, privatize), the manager’s pay-off is added by 2  If the manager cheats on reporting the profit, he may be put into jail if being caught (with pay-off of -5 for NS&NR, and -7 for S&NR). The government’s reputation may be affected (a pay-off of -3). Yu Shi 9/27/12 Econ 400M

Government PrivatizeNot Privatize ManagerNS&NR(-6, -1)(4, 0) NS&R(-1, 4)(2, 2) S&NR(-8, -1)(3.5, 0) S&R(3, 5)(1, 2.5)

 20 people; 10 pairs.  Make sure everyone fully understand the information  The game is stopped if the column player chooses left, or automatically stopped if it is player for more than 20 rounds  Stop the experiment when the data is large enough. Yu Shi 9/27/12 Econ 400M Column LeftRight Row Top(-6, -1)(4, 0) Up(-1, 4)(2, 2) Bottom(-8, -1)(3.5, 0) Down(3, 5)(1, 2.5)

 If both of the row and column players are risk lovers, in the first round, the output is going to be (top, left).  If both of the row and column players are risk averters, in the first round the output is going to be (bottom, right). Column LeftRight RowTop(-6, -1)(4, 0) Up(-1, 4)(2, 2) Bottom(-8, -1)(3.5, 0) Down(3, 5)(1, 2.5)

 If the row player is a risk lover while the column player is a risk averter, they are going to end up with “Top, Right” until the game is automatically stopped.  If the row player is a risk averter while the column player is a risk lover, they are going to end up with “Bottom, Left” (PD). Column LeftRight RowTop(-6, -1)(4, 0) Up(-1, 4)(2, 2) Bottom(-8, -1)(3.5, 0) Down(3, 5)(1, 2.5)

 Usually government will not be a risk lover, thus the game will always end up with a NE, but may not with PD in some cases.  Policy Suggestion? Column LeftRight RowTop(-6, -1)(4, 0) Up(-1, 4)(2, 2) Bottom(-8, -1)(3.5, 0) Down(3, 5)(1, 2.5)

 Government moves first: Yu Shi 9/27/12 Econ 400M S&NR Privatize Not Privatize Government NS&NR NS&R (-1, -6) (4, -1) (0, 4) S&R (-1, -8) The Manager NS&NR S&R (5, 3) (2, 2) (0, 3.5) (2.5, 1) NS&R S&NR The Government PrivatizeNot Privatize The Manager NS&NR(-6, -1)(4, 0) NS&R(-1, 4)(2, 2) S&NR(-8, -1)(3.5, 0) S&R(3, 5)(1, 2.5)

 Manager moves first: Yu Shi 9/27/12 Econ 400M P NP Government (1, 2) (-1, 4) The Manager NS&NR S&R NS&R S&NR P NP Government (-6, -1) (-2, 0) P NP Government (-8, -1) (-4.5, 0) P NP Government (3, 5) (1, 2.5) The Government PrivatizeNot Privatize The Manager NS&NR(-6, -1)(4, 0) NS&R(-1, 4)(2, 2) S&NR(-8, -1)(3.5, 0) S&R(3, 5)(1, 2.5)

 Lose efficiency!  Policy suggestion? Yu Shi 9/27/12 Econ 400M The Government PNP The Manager NS&NR(-6, -5)(4, 0) NS&R(-1, 0)(2, 2) S&NR(-8, -5)(3.5, 0) S&R(3, 1)(1, 2.5)

 Hung-Gay Fung, Donald Kummer and Jinjian Shen, 2006 “China’s Privatization Reforms: Progress and Challenges”, The Chinese Economy, vol. 39, no. 2, pp. 5–25.  Russell W. Cooper, Douglas V. DeJong, Robert Forsythe and Thomas W. Ross “Selection Criteria in Coordination Games: Some Experimental Results”, The American Economic Review, Vol. 80, No. 1. pp  Stephen Philion, “Workers' Democracy vs. Privatization in China”, Socialism and Democracy, Volume 21, Issue 2, 2007  Avinash Dixit and Susan Skeaty Games of Strategy, W. W. Norton & Company, Inc. pp  Russell W. Cooper Coordination Games. Cambridge University Press. pp. 1-18

Yu Shi 9/27/12 Econ 400M