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Reversibility in Dynamic Coordination Problems

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  • Eugen Kovac
  • Jakub Steiner

Abstract

Agents at the beginning of a dynamic coordination process (1) are uncertain about actions of their fellow players and (2) anticipate receiving strategically relevant information later on in the process. In such environments, the (ir)reversibility of early actions plays an important role in the choice among them. We characterize the strategic e ects of the reversibility option on the coordination outcome. Such an option can either enhance or hamper ecient coordination, and we determine the direction of the effect based only on simple features of the coordination problem. The analysis is based on a generalization of the Laplacian property known from static global games: Players at the beginning of a dynamic game act as if they were entirely uninformed about aggregate play of fellow players in each stage of the coordination process.

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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp374.

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Date of creation: Nov 2008
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Handle: RePEc:cer:papers:wp374

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Keywords: Delay; Exit; Global games; Laplacian belief; Learning; Option; Reversibility.;

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Citations

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Cited by:
  1. Bernardo Guimaraes & Luis Araujo, 2012. "The effect of options on coordination," 2012 Meeting Papers, Society for Economic Dynamics 474, Society for Economic Dynamics.
  2. Laurent Mathevet & Jakub Steiner, 2012. "Sand in the Wheels: A Dynamic Global-Game Approach," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp459, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Eugen Kovac & Jakub Steiner, 2008. "Reversibility in Dynamic Coordination Problems," CERGE-EI Working Papers, The Center for Economic Research and Graduate Education - Economic Institute, Prague wp374, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  4. Mathevet, Laurent & Steiner, Jakub, 2013. "Tractable dynamic global games and applications," Journal of Economic Theory, Elsevier, Elsevier, vol. 148(6), pages 2583-2619.

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