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Does Information Transparency Decrease Coordination Failure?

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  • Regina M. Anctil

    ()
    (Opus College of Business, University of St. Thomas)

  • John Dickhaut

    (Economic Science Institute, Chapman University)

  • Cathleen A. Johnson

    ()
    (Department of Economics, The University of Arizona)

  • Chandra Kanodia

    ()
    (Carlson School of Management, University of Minnesota)

Abstract

This study experimentally tests the effect of information transparency on the probability of coordination failure in global games with finite signals. Prior theory has shown that in global games with unique equilibrium, the effect of information transparency is ambiguous. We find that in global games where the signal space is finite, increased transparency has two effects. First, increasing the level of transparency usually destroys uniqueness and precipitates multiple equilibria, so that the effect of transparency on coordination depends crucially upon which equilibrium is actually attained. Second, the level of transparency determines which of these equilibria is risk dominant. We find that increased transparency facilitates coordination only if it switches the risk-dominant equilibrium from the secure equilibrium to the efficient equilibrium. When the converse is true, improved transparency can be dysfunctional because it increases the probability of coordination failure.

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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 08-07.

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Length: 44 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:chu:wpaper:08-07

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