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The Signaling Role of Leaders in Global Games

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  • Panagiotis Kyriazis
  • Edmund Lou

Abstract

How important are leaders' actions in facilitating coordination? In this paper, we investigate their signaling role in a global games framework. A perfectly informed leader and a team of followers face a coordination problem. Despite the endogenous information generated by the leader's action, we provide a necessary and sufficient condition that makes the monotone equilibrium strategy profile uniquely $\Delta$-rationalizable and hence guarantees equilibrium uniqueness. Moreover, the unique equilibrium is fully efficient. This result remains valid when the leader observes a noisy signal about the true state except full efficiency may not be obtained. We discuss the implications of our results for a broad class of phenomena such as adoption of green technology, currency attacks and revolutions.

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  • Panagiotis Kyriazis & Edmund Lou, 2022. "The Signaling Role of Leaders in Global Games," Papers 2209.12426, arXiv.org, revised Jul 2023.
    • Handle: RePEc:arx:papers:2209.12426
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    References listed on IDEAS

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    1. Sandeep Baliga & Tomas Sjöström, 2004. "Arms Races and Negotiations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 351-369.
    2. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
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