In this seminar Larry Liu will provide an overview of his recent paper, Pareto improvements under matching mechanisms in a public good economy, which investigates Pareto-improving equilibria under various matching schemes with two heterogeneous players of the Cobb-Douglas utility function. The author finds that there is always a neutrality zone within which any endowment distribution would reach the same interior equilibrium, and within the neutrality zone players can always implement some small matching schemes to make them both better off, no matter how heterogeneous they are in the preference. This finding is useful for cooperation, particularly in the context without exact knowledge of individual preferences or at the international level without a central government. Moreover, the Pareto-improving matching scheme can be very flexible. However, pessimistically, if players attach higher weights of value to the private good, the neutrality zone becomes smaller, which requires the endowments of two players must be very close for Pareto-improving matching schemes to exist. Finally, the paper has visualized the neutrality zone and Pareto-improving equilibria in a special Cobb-Douglas example through the Kolm triangle.

Larry Liu is a PhD candidate in Economics in CAMA. His research focuses on environmental economics, particularly on climate change, economic growth and resource exploitation, game theory on public goods.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.