Reversibility in Dynamic Coordination Problems

CERGE-EI Working Paper Series No. 374

55 Pages Posted: 7 Oct 2009 Last revised: 27 Jan 2010

See all articles by Eugen Kováč

Eugen Kováč

University of Duisburg-Essen - Mercator School of Management

Jakub Steiner

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

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

Kovac, Eugen and Steiner, Jakub, Reversibility in Dynamic Coordination Problems (November 1, 2008). CERGE-EI Working Paper Series No. 374, Available at SSRN: https://ssrn.com/abstract=1483224 or http://dx.doi.org/10.2139/ssrn.1483224

Eugen Kovac (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

Jakub Steiner

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic
+420 605 286 947 (Phone)

HOME PAGE: http://www.cerge-ei.cz

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