This paper extends our earlier analysis of interdependent security issues to a general class of problems involving discrete interdependent risks with heterogeneous agents. There is a threat of an event that can only happen once, and the risk depends on actions taken by others. Any agent's incentive to invest in managing the risk depends on the actions of others. Security problems at airlines and in computer networks come into this category, as do problems of risk management in organizations facing the possibility of bankruptcy, and individuals' choices about whether to be vaccinated against an infectious disease. Surprisingly the framework also covers certain aspects of investment in R&D. Here we characterize Nash equilibria with heterogeneous agents and give conditions for tipping and cascading of equilibria.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9885.
Length: Date of creation: Aug 2003 Date of revision: Handle: RePEc:nbr:nberwo:9885
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Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
V.V. Chari & Ravi Jagannathan, 1984.
"Banking Panics,"
Discussion Papers
618, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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