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Coordination cycles

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Steiner, Jakub

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Abstract

Players repeatedly face a coordination problem in a dynamic global game. By choosing a risky action (invest) instead of waiting, players risk instantaneous losses as well as a loss of payoffs from future stages, in which they cannot participate if they go bankrupt. Thus, the total strategic risk associated with investment in a particular stage depends on the expected continuation payoff. High continuation payoff makes investment today more risky and therefore harder to coordinate on, which decreases today's payoff. Thus, expectation of successful coordination tomorrow undermines successful coordination today, which leads to fluctuations of equilibrium behavior even if the underlying economic fundamentals happen to be the same across the rounds. The dynamic game inherits the equilibrium uniqueness of the underlying static global game.

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File URL: http://www.sciencedirect.com/science/article/B6WFW-4PR3GBX-3/1/321a8fa07bd23e0c1a1f1460d0b2526f
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Publisher Info
Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 63 (2008)
Issue (Month): 1 (May)
Pages: 308-327
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Handle: RePEc:eee:gamebe:v:63:y:2008:i:1:p:308-327

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Web page: http://www.elsevier.com/locate/inca/622836

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References listed on IDEAS
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  2. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June. [Downloadable!] (restricted)
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  3. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-90, December. [Downloadable!] (restricted)
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  5. Flavio Toxvaerd, 2004. "Strategic Merger Waves: A Theory of Musical Chairs," Discussion Paper Series dp359, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
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  23. David Frankel & Ady Pauzner, 2000. "Resolving Indeterminacy In Dynamic Settings: The Role Of Shocks," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 285-304, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jakub Steiner, 2006. "Coordination of Mobile Labor," ESE Discussion Papers 152, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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  2. Toxvaerd, Flavio, 2007. "Strategic Merger Waves: A Theory of Musical Chairs," CEPR Discussion Papers 6159, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Giannitsarou, Chryssi & Toxvaerd, Flavio, 2007. "Recursive Global Games," CEPR Discussion Papers 6470, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
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