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Microeconomic theories

Explain the choices faced by agents in the situation. What incentives are faced by
homogeneous/heterogeneous agents? Use microeconomic theories to explain choices and

incentives and “utility maximizing” decisions of agents in the situation?


III. Political game
This project is based on using a relevant game to analyse a real (and current) political unrest.
? Collect information by:

  1. Reading news/media updates about an aspect of a political situation.
  2. Observe the tactics/strategies employed by both �players�.
  3. Observe the external environment of the situation.
    ? Formulate the following based on your observation and data collection
  4. Rules of the game (players, strategies, responses, payoffs, etc)
  5. Choices, incentive and decisions of players in this game

My part is doing Hong Kong’s democratic movement which continues right now, i will upload my team
member, just follow what he did in his report is fine. the players in the game should be different group of
HK people

The choices/incentives faced by homogeneous/heterogeneous agents

Hong Kong is one of the largest cities of China today and it’s located strategically in the South of
the China Sea. Hong Kong prides itself as a major global economical center that has a lot of
influence in global finance and transportation. Before the year 1997, Hong Kong was still a
British Protectorate. As the heart of the Cantonese China, Hong Kong was eventually transferred
to the Chinese authorities in 1997who promised to respect the rule of law and also to uphold its
democracy. However, after its incorporation into the Chinese governmental authority, the
Chinese government went back on its promises and at the end of August 2014, the Chinese
government issued a directive that it would select the candidates who would run in the following
executive election for high office in Hong Kong. By issuing the directive, the residents of Hong
Kong felt that the Chinese government had interfered with the city’s election and mass protests
ensued. (Carroll, 2007) The large, pro-democracy groups and other protesters blocked the roads
hindering business, transportation, economics and industry operations in the general Chinese
economy. The Chinese government battled for the entire control of the city’s economy and
administrative functions while the residents and the anti-Chinese government protesters fought
for the extension of its status quo as allowed by the British government. Hong Kong had greater
autonomy and operated under its own by-laws through open democratic processes and the
economy thrived because of the open democratic and capitalistic systems. (Zhang, Nathan, Link
& Schell, 2002)
China detests Hong Kong’s robust democratic institutions like the judicial institution that has
qualified international judges and the existence of the press freedom law. Hong Kong’s election

The choices/incentives faced by homogeneous/heterogeneous agents
process is also more democratic than the Chinese election that requires more than 150 council
supporters to qualify one to run for political office.
The constant clashes between the law enforcement agencies and the pro-democracy supporters,
has resulted in reduced economic activities and has also led to relocation of the city’s best brains
and businesses. The western countries have also placed an embargo on all imports from
In the Financial world, Hong Kong is one of the major cities of China. It has exports close to
$457 billion in 2013 most of which are exported to China. While at the same time, importing
goods mostly from China worth $521 Billion for the same period. The major industries are
textile, banking, electronics, shipping, watches, toys and plastics. The main income earning
business is the service industry which accounts for almost 90% of its GDP. The GDP growth was
7.2% in the first quarter of the year 2011 while the GDP per Capita was US$50,936 PPP in 2012.
China wants to control the resources of these vast city but the citizens have put up a fight to
maintain its conservative British style of government. If the standoff persists both the Chinese
government and the residents would lose. The Chinese government would certainly lose its taxes
and business prospects while the citizens would lose jobs, business profits and other earnings and
most of the foreign countries in the western world would also lose their exports of arms sales that
they were exporting to China.
The two agents are faced with a dilemma; Prisoners Dilemma as shown in the table below.

  Players/Strategies Chinese Authorities
    Cooperate Defect
  Cooperate 2,2 – 3, -1
World/Protesters/Traders Defect -1 , -3 -5 , -5

The choices/incentives faced by homogeneous/heterogeneous agents

Prisoners Dilemma game
While Russia would lose one its economic major cities if it continues with its regular clashes
with the protesters and the economic costs and also the consequences of such actions would be
huge. The prisoners dilemma in these case explains the options available to China and the
foreign nations including the EU that have already placed embargoes on arm sales to China
because its handling of the protesters during the Tiananmen square demonstration and the
interference of the Hong Kong democratic elections. (Youngs, 2002) The payoffs have been
measured generally as a percentage of the Hong Kong’s GDP growth and the outcomes of the
arms embargoes placed on Chinese government and the constant interruptions of the trading
district. (Suettinger, 2004)
The table indicates the direct outcomes of the prisoner’s dilemma game. We make the
assumptions that the players on both sides are rational and they are all aware of their outcomes
and strategies applied.
The values shown on the payoff matrix are not real but have been used to demonstrate the
economic results of the exercise. The inability of China to import arms from the US would also
impact on the US economy just as much as it would affect the Chinese government when it has
again to negotiate other arms deals with different countries.
To analyze the economic situation depending on the strategy adopted;

The choices/incentives faced by homogeneous/heterogeneous agents
If both countries cooperate and the clashes are eliminated, the protesters would benefit just as
much as the US would be able to export its arms to china and both countries would benefit
economically hence positive economic growth.
One country can choose to cooperate and the other refuses. In respect to our last assumption the
countries would be entitled to respective payoffs. One country defects and accommodates the
other one hence the country would be less affected and benefit. As a result, the defected country
would experience less economic growth than the one that accommodated the other one.
In another scenario but countries may decide defect/defect. Both countries may decide to impose
trade restrictions to each other and they would be worse off while their economies would bear
the weight of their unwise decisions.
The unlikely outcome in a game theory is what actually happened when both players decided to
opt for the least option of defect/defect and which goes against any grain of economic principles.
Its not possible to predict how the Chinese government is planning to deal with the Hong Kong
issue as its recent economic trends is gradually reducing compared to the earlier years when it
was still under the British rule. The Hong Kong residents are still determined to fight on till their
demands are addressed. The ideologically and political history of the Chinese have a lot in
common with the Russian Government and its predictable that they would not be relenting on
their determination to secure and control the vibrant economy of the world most vibrant financial
city notwithstanding the colossal economical costs that may be incurred because of their actions.

The choices/incentives faced by homogeneous/heterogeneous agents

Carroll, J. M. A. (2007) Concise History of Hong Kong. Rowman & Littlefield.
Suettinger, R. L. (2004). Beyond Tiananmen: The Politics of U.S.-China Relations 1989–2000.
Brookings Institution Press. p. 105
Youngs, R. (2002) The European Union and the Promotion of Democracy, Oxford University
Zhang, L., Nathan, A. J., Link, P. & Schell O. (2002) The Tiananmen Papers: The Chinese
Leadership’s Decision to Use Force against Their Own People – In Their Own Words. Public

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