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Investment dynamics with common and private values

  • Levin, Dan
  • Peck, James

We study a dynamic investment game with two-dimensional signals, where each firm observes its continuously distributed idiosyncratic cost of investment and a discrete signal correlated with common investment returns. We demonstrate that the one-step property holds and provide an equilibrium existence/characterization result. "Reversals" are possible, where a large number of firms investing in a given round becomes bad news about investment returns. Welfare is compared to static and rigid-timing benchmarks, and computed for large economies.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 143 (2008)
Issue (Month): 1 (November)
Pages: 114-139

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Handle: RePEc:eee:jetheo:v:143:y:2008:i:1:p:114-139
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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