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Unraveling Coordination Problems

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  • Roweno J. R. K. Heijmans

Abstract

Strategic uncertainty complicates policy design in coordination games. To rein in strategic uncertainty, the Planner in this paper connects the problem of policy design to that of equilibrium selection. We characterize the subsidy scheme that induces coordination on a given outcome of the game as its unique equilibrium. Optimal subsidies are unique, symmetric for identical players, continuous functions of model parameters, and do not make the targeted strategies strictly dominant for any one player; these properties differ starkly from canonical results in the literature. Uncertainty about payoffs impels policy moderation as overly aggressive intervention might itself induce coordination failure. JEL codes: D81, D82, D83, D86, H20. Keywords: mechanism design, global games, contracting with externalities, unique implementation.

Suggested Citation

  • Roweno J. R. K. Heijmans, 2023. "Unraveling Coordination Problems," Papers 2307.08557, arXiv.org, revised Aug 2023.
    • Handle: RePEc:arx:papers:2307.08557
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    More about this item

    Keywords

    mechanism design; global games; contracting with externalities; unique implementation.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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