Coordination Cycles

Jakub Steiner

Research output: Working paperDiscussion paper

Abstract

Players repeatedly face a coordination problem in a dynamic global game. By choosing a risky action (invest) instead of waiting, players risk instantaneous losses as well as a loss of payoffs from future stages, in which they cannot participate if they go bankrupt. Thus, the total strategic risk associated with investment in a particular stage depends on the expected continuation payoff. High continuation payoff makes investment today more risky and therefore harder to coordinate on, which decreases today’s payoff. Thus, expectation of successful coordination tomorrow undermines successful coordination today,
which leads to fluctuations of equilibrium behavior even if the underlying economic fundamentals happen to be the same across the rounds. The dynamic game inherits the equilibrium uniqueness of the underlying static global game.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages30
Publication statusPublished - 20 Oct 2006

Publication series

NameESE Discussion Papers
No.162

Keywords

  • coordination
  • crises
  • cycles and fluctuations
  • equilibrium uniqueness
  • global games
  • C72
  • C73
  • D8
  • E32

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  • Coordination cycles

    Steiner, J., May 2008, In: Games and Economic Behavior. 63, 1, p. 308-327

    Research output: Contribution to journalArticlepeer-review

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