When are Agents Negligible?
We examine the following paradox: In a dynamic setting, an arbitrarily large finite number of agents adn a continuum of agents can lead to radically different equilibrium outcomes. We show that in a simple strategic setting this paradox is a general phenomenon. We also show that the paradox disappears when there is noisy observation of the players' actions: The aggregate level of noise must disappear as the number of players increases, but not too rapidly. We give several economic examples in which this paradox has recently received attention: the durable goods monopoly, corporate takeovers, and time consistency of optimal governmetn policy.
|Date of creation:||Nov 1992|
|Contact details of provider:|| Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014|
Web page: http://www.kellogg.northwestern.edu/research/math/
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- Bagwell, Kyle, 1995.
"Commitment and observability in games,"
Games and Economic Behavior,
Elsevier, vol. 8(2), pages 271-280.
- Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-1478, December.
- Celentani, Marco & Pesendorfer, Wolfgang, 1996. "Reputation in Dynamic Games," Journal of Economic Theory, Elsevier, vol. 70(1), pages 109-132, July.
- Marco Celentani & Wolfgang Pesendorfer, 1992. "Reputation in Dynamic Games," Discussion Papers 1009, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
- V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
- V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
- Nabil Al-Najjar, 1992. "The Coase Conjecture in Markets with a Finite Number of Consumers," Cahiers de recherche du Département des sciences économiques, UQAM 9211, Université du Québec à Montréal, Département des sciences économiques. Full references (including those not matched with items on IDEAS)
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