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Reversibility in Dynamic Coordination Problems

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  • Eugen Kovac
  • Jakub Steiner

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Abstract

Agents at the beginning of a dynamic coordination process (1) are uncertain about actions of their fellow players and (2) anticipate receiving strategically relevant information later on in the process. In such environments, the (ir)reversibility of early actions plays an important role in the choice among them. We characterize the strategic effects of the reversibility option on the coordination outcome. Such an option can either enhance or hamper efficient coordination, and we determine the direction of the effect based only on simple features of the coordination problem. The analysis is based on a generalization of the Laplacian property known from static global games: players at the beginning of a dynamic game act as if they were entirely uninformed about aggregate play of fellow players in each stage of the coordination process.

Suggested Citation

  • Eugen Kovac & Jakub Steiner, 2008. "Reversibility in Dynamic Coordination Problems," Edinburgh School of Economics Discussion Paper Series 183, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:183
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    Cited by:

    1. József Sákovics & Jakub Steiner, 2012. "Who Matters in Coordination Problems?," American Economic Review, American Economic Association, vol. 102(7), pages 3439-3461, December.
    2. Larson Nathan, 2016. "Strategic Delay in Global Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(1), pages 83-117, January.
    3. Araujo, Luis & Guimaraes, Bernardo, 2015. "Intertemporal coordination with delay options," Journal of Economic Theory, Elsevier, vol. 157(C), pages 793-810.
    4. Mathevet, Laurent & Steiner, Jakub, 2013. "Tractable dynamic global games and applications," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2583-2619.
    5. Enrico Perotti & Rafael Matta, 2015. "Insecure Debt," Tinbergen Institute Discussion Papers 15-035/IV/DSF88, Tinbergen Institute.
    6. Bernardo Guimaraes & Luis Araujo, 2012. "The effect of options on coordination," 2012 Meeting Papers 474, Society for Economic Dynamics.
    7. Kováč, Eugen & Steiner, Jakub, 2013. "Reversibility in dynamic coordination problems," Games and Economic Behavior, Elsevier, vol. 77(1), pages 298-320.
    8. Jakub Steiner & Laurent Mathevet, 2012. "Sand in the Wheels: A Dynamic Global-Game Approach," 2012 Meeting Papers 123, Society for Economic Dynamics.
    9. Brindisi, Francesco & Çelen, Boğaçhan & Hyndman, Kyle, 2014. "The effect of endogenous timing on coordination under asymmetric information: An experimental study," Games and Economic Behavior, Elsevier, vol. 86(C), pages 264-281.
    10. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    11. 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.
    12. 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.

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    More about this item

    Keywords

    delay; exit; global games; Laplacian belief; learning; option; reversibility;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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