Reversibility in Dynamic Coordination Problems
CERGE-EI Working Paper Series No. 374
55 Pages Posted: 7 Oct 2009 Last revised: 27 Jan 2010
Date Written: November 1, 2008
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.
Keywords: Delay, Exit, Global Games, Laplacian Belief, Learning, Option, Reversibility
JEL Classification: C7, D8
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Global Games: Theory and Applications
By Stephen Morris and Hyun Song Shin
-
Demand Deposit Contracts and the Probability of Bank Runs
By Itay Goldstein and Ady Pauzner
-
Coordination Risk and the Price of Debt
By Stephen Morris and Hyun Song Shin
-
Coordination Failures and the Lender of Last Resort: Was Bagehot Right after All?
By Jean-charles Rochet and Xavier Vives
-
Equilibrium Selection in Global Games with Strategic Complementarities
By David M. Frankel, Stephen Morris, ...
-
By George-marios Angeletos, Christian Hellwig, ...
-
By George-marios Angeletos, Christian Hellwig, ...
-
Bank Runs: Liquidity and Incentives
By Russell Cooper and Thomas W. Ross
-
Crises and Prices: Information Aggregation, Multiplicity and Volatility
-
Crises and Prices: Information Aggregation, Multiplicity and Volatility