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Coordination Cycles

Author

Listed:
  • Jakub Steiner

Abstract

We build a dynamic global game in which players repeatedly face a similar coordination problem. By choosing a risky action (invest) instead of an outside option (not invest), players risk instantaneous losses as well as payoffs from future stages, in which they cannot participate if they go bankrupt. Thus, the total strategic risk associated with investment in a particular stage depends on the expected continuation payoff. High expected future payoffs make investment today more risky and therefore harder to coordinate on, which decreases today’s payoff. Expectation of successful coordination tomorrow undermines successful coordination today which leads to fluctuations of equilibrium behavior even if the underlying economic fundamentals happen to be stationary. The dynamic game inherits the equilibrium uniqueness of static global games.

Suggested Citation

  • Jakub Steiner, 2005. "Coordination Cycles," CERGE-EI Working Papers wp274, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp274
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    Cited by:

    1. Toxvaerd, Flavio, 2008. "Strategic merger waves: A theory of musical chairs," Journal of Economic Theory, Elsevier, vol. 140(1), pages 1-26, May.
    2. Huanxing Yang, 2010. "Information aggregation and investment cycles with strategic complementarity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(2), pages 281-311, May.
    3. Araujo, Luis & Guimaraes, Bernardo, 2015. "Intertemporal coordination with delay options," Journal of Economic Theory, Elsevier, vol. 157(C), pages 793-810.
    4. Oh, Frederick Dongchuhl, 2013. "Contagion of a liquidity crisis between two firms," Journal of Financial Economics, Elsevier, vol. 107(2), pages 386-400.
    5. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    6. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    7. Szkup, Michal, 2020. "Multiplier effect and comparative statics in global games of regime change," Theoretical Economics, Econometric Society, vol. 15(2), May.
    8. Flavio Toxvaerd & Chryssi Giannitsarou, 2004. "Recursive global games," Money Macro and Finance (MMF) Research Group Conference 2003 104, Money Macro and Finance Research Group.
    9. Schaal, Edouard & Taschereau-Dumouchel, Mathieu, 2025. "Coordinating business cycles," Journal of Monetary Economics, Elsevier, vol. 155(S).
    10. Steiner, Jakub, 2008. "Coordination of mobile labor," Journal of Economic Theory, Elsevier, vol. 139(1), pages 25-46, March.
    11. Larson Nathan, 2016. "Strategic Delay in Global Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 83-117, January.
    12. Liao, Xiaoye & Szkup, Michal, 2026. "Coordination with sequential information acquisition," Theoretical Economics, Econometric Society, vol. 21(1), January.
    13. Bernardo Guimaraes & Luis Araujo, 2012. "The effect of options on coordination," 2012 Meeting Papers 474, Society for Economic Dynamics.
    14. Bernardo Guimaraes & Caio Machado & Ana E. Pereira, 2020. "Dynamic coordination with timing frictions: Theory and applications," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 656-697, June.
    15. Aikman, David & Nelson, Benjamin & Tanaka, Misa, 2015. "Reputation, risk-taking, and macroprudential policy," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 428-439.
    16. , L., 2013. "Fragility of reputation and clustering of risk-taking," Theoretical Economics, Econometric Society, vol. 8(3), September.

    More about this item

    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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