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Booms And Slumps In A Game Of Sequential Investment With The Changing Fundamentals

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  • DAISUKE OYAMA

Abstract

Many less developed countries have experienced prolonged periods of expansions and reversals in foreign investment inflows. This paper presents a simple game‐theoretic model that can explain hysteretic patterns of serial correlation in investment behavior. We develop a sequential move game of coordinated investment played by short‐run players under the changing economic environment and demonstrate that in a unique equilibrium of the game, the economy fluctuates over multiple static equilibria, generating hysteresis.

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  • Daisuke Oyama, 2004. "Booms And Slumps In A Game Of Sequential Investment With The Changing Fundamentals," The Japanese Economic Review, Japanese Economic Association, vol. 55(3), pages 311-320, September.
    • Handle: RePEc:bla:jecrev:v:55:y:2004:i:3:p:311-320
    DOI: 10.1111/j.1468-5876.2004.00275.x
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    Cited by:

    1. Frankel, David M., 2012. "Recurrent crises in global games," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 309-321.
    2. Flavio Toxvaerd & Chryssi Giannitsarou, 2004. "Recursive global games," Money Macro and Finance (MMF) Research Group Conference 2003 104, Money Macro and Finance Research Group.
    3. David M. Frankel, 2010. "Rent Seeking and Economic Fragility," Levine's Bibliography 661465000000000159, UCLA Department of Economics.
    4. Frankel, David M., 2010. "Shocks and Crises in the Long Run," Staff General Research Papers Archive 31687, Iowa State University, Department of Economics.
    5. Huanxing Yang, 2010. "Information aggregation and investment cycles with strategic complementarity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(2), pages 281-311, May.
    6. Frankel, David M., 2017. "Efficient ex-ante stabilization of firms," Journal of Economic Theory, Elsevier, vol. 170(C), pages 112-144.
    7. Frankel, David M., 2015. "Insuring Customers of a Unionized Firm Against Loss of Network Benefits," Staff General Research Papers Archive 38580, Iowa State University, Department of Economics.
    8. Steiner, Jakub, 2008. "Coordination cycles," Games and Economic Behavior, Elsevier, vol. 63(1), pages 308-327, May.
    9. COLLA, Paolo & GARCIA, Filomena, 2004. "Technology adoption with forward looking agents," LIDAM Discussion Papers CORE 2004041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Frankel, David M., 2014. "Optimal Insurance for Small Stakeholders," Staff General Research Papers Archive 37551, Iowa State University, Department of Economics.
    11. Kasahara, Tetsuya, 2013. "Investment complementarities, coordination failure, and the role and effects of public investment policy," Discussion Paper Series 589, Institute of Economic Research, Hitotsubashi University.

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