When Are Agents Negligible?
The authors examine the following paradox: in a dynamic setting, equilibria can be radically different in a model with a finite number of agents than in a model with a continuum of agents. They present a simple strategic setting in which this paradox is a general phenomenon. However, the paradox disappears when there is noisy observation of the players' actions and the aggregate level of noise does not disappear too rapidly as the number of players increases. The authors give several economic examples in which this paradox has recently received attention: durable-goods monopoly, corporate takeovers, and time consistency of optimal government policy. Copyright 1995 by American Economic Association.
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Volume (Year): 85 (1995)
Issue (Month): 5 (December)
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- V. V. Chari & Patrick J Kehoe, 1998.
Levine's Working Paper Archive
600, David K. Levine.
- Celentani, Marco & Pesendorfer, Wolfgang, 1996.
"Reputation in Dynamic Games,"
Journal of Economic Theory,
Elsevier, vol. 70(1), pages 109-132, July.
- Kyle Bagwell, 1992.
"Commitment and Observability in Games,"
1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December.
- Nabil Al-Najjar, 1992. "The Coase Conjecture in Markets with a Finite Number of Consumers," Cahiers de recherche du Département des sciences économiques, UQAM 9211, Université du Québec à Montréal, Département des sciences économiques.
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