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This chapter illustrates how the theory of repeated games with perfect monitoring can be used in economic applications. It examines collusion and price wars in oligopolistic industries subject to demand shocks, government policy and time consistency, and endogenous risk sharing (e.g., insurance).

This chapter studies the time consistency problem as it affects tax policy. One example of the time consistency problem is the capital levy. Current governments cannot force future governments to continue their tax policy and the usual scenario in most countries is that there is a ongoing change in tax policies as governments change. This time consistency problem tends to favor income tax over a consumption tax because of the temptation to tax fixed factors like capital at a high rate. However, tax evasion can reverse this scenario. Since it is easier to evade taxes on capital income than taxes on labor income, then it may be optimal to tax labor income at a higher rate than capital income.

The Lucas and Stokey (1983) economy without capital is used to exhibit features of the Lucas and Stokey model of optimal taxation, and show how they compare with Barro's (1979) tax‐smoothing model. Computation of optimal fiscal policies for Lucas and Stokey's model requires repeated evaluations of the present value of the government's surplus, an object formally equivalent to an asset price. The functional equation for an asset price is typically difficult to solve. A linear quadratic version of Lucas and Stokey's model is specified, which makes both asset pricing computations and optimal fiscal policy calculations easy. Martingale returns on government debt are discussed, and examples and extensions of Lucas and Stokey's model given. Two appendices describe and discuss: the key steps for two basic kinds of stochastic process (a stochastic first‐order linear difference equation and a Markov chain), and time consistency and the structure of debt. Lastly, details are given of the appropriate MATLAB programs.

This chapter explains why an adequate understanding of culture requires that we consider how culture works in like fashion across all societies. There is more to culture than the peculiarities of the societies we live in, and it is by understanding what gives culture its power that we can better understand how to ensure that the kind of culture that can support mass flourishing can be sustained. A hallmark of most cultures is childhood instruction. This is crucial for encoding morally desirable behavior through tastes, but this mechanism can also produce the cultural lock-in of beliefs and practices that are inimical to the emergence of a free market democracy and mass flourishing.

Employing a Stackelberg differential game approach, the chapter derives the carbon tax chosen by a climate coalition of resource consuming countries which purchase the fossil resource from a representative competitive resource supplier. The global climate coalition reduces the speed at which the global fossil resource stock is depleted over time to the socially efficient level by levying the Pigou tax on resource consumption. If the climate coalition is incomplete, the chosen unilateral carbon tax falls short of the Pigou tax. Furthermore, international carbon leakage undermines the effectiveness of the unilateral carbon tax in slowing down the speed of global resource extraction. Nevertheless, under the assumptions made, also the incomplete climate coalition is able to slow down the speed of global extraction to some extent because the chosen carbon tax is time-consistent, irrespective of whether the coalition is global or incomplete.