Coordinating Regime Switches
The canonical model of strategic complementarities between individual actions, which exhibits multiple equilibria under perfect information, is extended with heterogeneous agents and imperfect information. Agents observe their own cost of action and the history of the levels of aggregate activity. The distribution of individual characteristics evolves through a random process, and individuals are rational Bayesians. Under plausible conditions, there is a unique equilibrium with phases of high and low activity and random switches. Applications may be found in macroeconomics and revolutions. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
Volume (Year): 114 (1999)
Issue (Month): 3 (August)
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