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Payoff Shocks and Equilibrium Selection with Endogenous Flexibility

Author

Listed:
  • Frankel, D.M.

Abstract

In dynamic models with multiple equilibria, a central question is how agents coordinate their expectations on a particular outcome. Many dynamic models feature endogenous flexibility: at some cost, agents can adjust their behavior more quickly (e.g., in response to changing market conditions). We show that aggregate payoff shocks eliminate all equilibria but one in a general dynamic setting with endogenous flexibility. The results are applied to a model of development.

Suggested Citation

  • Frankel, D.M., 2001. "Payoff Shocks and Equilibrium Selection with Endogenous Flexibility," Papers 2001-9, Tel Aviv.
    • Handle: RePEc:fth:teavfo:2001-9
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    Cited by:

    1. Flavio Toxvaerd & Chryssi Giannitsarou, 2004. "Recursive global games," Money Macro and Finance (MMF) Research Group Conference 2003 104, Money Macro and Finance Research Group.
    2. COLLA, Paolo & GARCIA, Filomena, 2004. "Technology adoption with forward looking agents," LIDAM Discussion Papers CORE 2004041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    GAMES ; MACROECONOMICS ; ECONOMIC DEVELOPMENT;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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