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When Are Agents Negligible?

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  • Levine, David K
  • Pesendorfer, Wolfgang

Abstract

The authors examine the following paradox: in a dynamic setting, equilibria can be radically different in a model with a finite number of agents than in a model with a continuum of agents. They present a simple strategic setting in which this paradox is a general phenomenon. However, the paradox disappears when there is noisy observation of the players' actions and the aggregate level of noise does not disappear too rapidly as the number of players increases. The authors give several economic examples in which this paradox has recently received attention: durable-goods monopoly, corporate takeovers, and time consistency of optimal government policy. Copyright 1995 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 85 (1995)
Issue (Month): 5 (December)
Pages: 1160-70

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Handle: RePEc:aea:aecrev:v:85:y:1995:i:5:p:1160-70

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  1. Nabil Al-Najjar, 1992. "The Coase Conjecture in Markets with a Finite Number of Consumers," Cahiers de recherche du Département des sciences économiques, UQAM 9211, Université du Québec à Montréal, Département des sciences économiques.
  2. Marco Celentani & Wolfgang Pesendorfer, 1992. "Reputation in Dynamic Games," Discussion Papers 1009, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
  4. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
  5. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December.
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