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The effect of options on coordination

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  • GUIMARAES, Bernardo
  • ARAUJO, Luis

Abstract

This paper studies how constraints on the timing of actions affect equilibrium in intertemporalcoordination problems. The model exhibits a unique symmetric equilibrium in cut-o¤ strategies.The risk-dominant action of the underlying one-shot game is selected when the option to delayeffort is commensurate with the option to wait longer for others' actions. The possibility of waitinglonger for the actions of others enhances coordination, but the option of delaying one s actionscan induce severe coordination failures: if agents are very patient, they might get arbitrarily lowexpected payoffs even in cases where coordination would yield arbitrarily large returns.

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/11016/1/TD%20324%20-%20Bernardo%20Guimar%c3%a3es%20-%20Luis%20Araujo.pdf
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Bibliographic Info

Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 324.

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Date of creation: 02 Aug 2013
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Handle: RePEc:fgv:eesptd:324

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