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Coordination, learning, and delay

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  • Amil Dasgupta
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    Abstract

    This paper studies how the introduction of social learning with costs to delay affects coordination games with incomplete information. We present a tractable noisy dynamic coordination game with social learning and costs to delay. We show that this game has a unique monotone equilibrium. A comparison of the equilibrium of the dynamic game with the equilibria of analogous static coordination games explicates the role of social learning. The analysis is carried out for both endogenous and exogenous order of moves in the dynamic game. In the limit as noise vanishes, social welfare is strictly ranked in these games, with the highest welfare achieved in the dynamic game with endogenous ordering. We demonstrate that exogenous asynchronicity is not a substitute for endogenous asynchronicity. We also show that under endogenous ordering, as noise vanishes, the efficiency of coordination is maximized at intermediate costs to delay. The robustness of these results is illustrated numerically away from the complete information limit, when closed forms are not available. Our results have implications for the initial public offerings of debt, as well as for the adoption of new technology under incomplete information.

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    File URL: http://eprints.lse.ac.uk/24955/
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24955.

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    Length: 35 pages
    Date of creation: Dec 2002
    Date of revision:
    Handle: RePEc:ehl:lserod:24955

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    Related research

    Keywords: Coordination; Equilibrium selection; Social learning; Network externalities; Global games;

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    References

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    1. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, Econometric Society, vol. 62(5), pages 1065-85, September.
    2. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
    3. Frankel, David M. & Pauzner, Ady, 2000. "Resolving Indeterminacy in Dynamic Settings: The Role of Shocks," Staff General Research Papers 11924, Iowa State University, Department of Economics.
    4. Jay Pil Choi, 1997. "Herd Behavior, the 'Penguin Effect,' and the Suppression of Informational Diffusion: An Analysis of Informational Externalities and Payoff Interdependency," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 407-425, Autumn.
    5. Burdzy, Krzysztof & Frankel, David M & Pauzner, Ady, 2001. "Fast Equilibrium Selection by Rational Players Living in a Changing World," Econometrica, Econometric Society, Econometric Society, vol. 69(1), pages 163-89, January.
    6. Leslie M. Marx & Steven A. Matthews, . "Dynamic Voluntary Contribution to a Public Project," Penn CARESS Working Papers 6f8dbf67d492ff8a10975496b, Penn Economics Department.
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    Cited by:
    1. Ivan Werning & George-Marios Angeletos, 2005. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," 2005 Meeting Papers 284, Society for Economic Dynamics.
    2. Christian Hellwig, 2004. "Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks (August 2006, with George-Marios Angeletos and Alessandro Pavan)," UCLA Economics Online Papers 279, UCLA Department of Economics.
    3. Nikola A. Tarashev, 2003. "Currency Crises and the Informational Role of Interest Rates," BIS Working Papers 135, Bank for International Settlements.
    4. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Information Dynamics and Equilibrium Multiplicity in Global Games of Regime Change," NBER Working Papers 11017, National Bureau of Economic Research, Inc.

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