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Tractable dynamic global games and applications


Mathevet, Laurent; Steiner, Jakub (2013). Tractable dynamic global games and applications. Journal of Economic Theory, 148(6):2583-2619.

Abstract

We present a family of tractable dynamic global games and its applications. Agents privately learn about a fixed fundamental, and repeatedly adjust their investments while facing frictions. The game exhibits many externalities: payoffs may depend on the volume of investment, on its volatility, and on its concentration. The solution is driven by an invariance result: aggregate investment is (in a pivotal contingency) invariant to a large family of frictions. We use the invariance result to examine how frictions, including those similar to the Tobin tax, affect equilibrium. We identify conditions under which frictions discourage harmful behavior without compromising investment volume.

Abstract

We present a family of tractable dynamic global games and its applications. Agents privately learn about a fixed fundamental, and repeatedly adjust their investments while facing frictions. The game exhibits many externalities: payoffs may depend on the volume of investment, on its volatility, and on its concentration. The solution is driven by an invariance result: aggregate investment is (in a pivotal contingency) invariant to a large family of frictions. We use the invariance result to examine how frictions, including those similar to the Tobin tax, affect equilibrium. We identify conditions under which frictions discourage harmful behavior without compromising investment volume.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Economics and econometrics, global games, dynamic game, coordination, unique equilibrium, welfare, taxation
Language:English
Date:1 November 2013
Deposited On:24 Sep 2019 08:51
Last Modified:25 Sep 2019 00:47
Publisher:Elsevier
ISSN:0022-0531
OA Status:Green
Publisher DOI:https://doi.org/10.1016/j.jet.2013.07.015

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