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On Myopic Equilibria in Dynamic Games with Endogenous Discounting

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  • Wilko Bolt
  • Alexander F. Tieman

Abstract

This paper derives an equilibrium for a competitive multi-stage game in which an agents'' current action influences his probability of survival into the next round of play. This is directly relevant in banking, where a banks'' current lending and pricing decisions determines its future probability of default. In technical terms, our innovation is to consider a multi-stage game with endogenous discounting. An equilibrium for such a multi-stage game with endogenous discounting has not been derived before in the literature.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/302.

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Length: 16
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/302

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Related research

Keywords: Banks; Economic models; discounting; probability; equation; probabilities; present value; noncooperative games; deposit insurance; moral hazard; prisoners ? dilemma; derivative; financial liberalization; numerical values; game theory;

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  1. Hausken, Kjell, 2005. "The battle of the sexes when the future is important," Economics Letters, Elsevier, Elsevier, vol. 87(1), pages 89-93, April.
  2. W. Bolt & A.F. Tieman, 2001. "Banking competition, risk and regulation," DNB Staff Reports (discontinued), Netherlands Central Bank 70, Netherlands Central Bank.
  3. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
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