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Tractable dynamic global games and applications

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  • Mathevet, Laurent
  • Steiner, Jakub

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.

Suggested Citation

  • Mathevet, Laurent & Steiner, Jakub, 2013. "Tractable dynamic global games and applications," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2583-2619.
    • Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2583-2619
    DOI: 10.1016/j.jet.2013.07.015
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    Cited by:

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    2. Bernardo Guimaraes & Luis Araujo, 2012. "The effect of options on coordination," 2012 Meeting Papers 474, Society for Economic Dynamics.
    3. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    4. Szkup, Michal, 2020. "Multiplier effect and comparative statics in global games of regime change," Theoretical Economics, Econometric Society, vol. 15(2), May.
    5. Mathieu Taschereau-Dumouchel & Edouard Schaal, 2015. "Coordinating Business Cycles," 2015 Meeting Papers 178, Society for Economic Dynamics.
    6. Bernardo Guimaraes & Caio Machado & Ana E. Pereira, 2020. "Dynamic coordination with timing frictions: Theory and applications," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 656-697, June.
    7. Araujo, Luis & Guimaraes, Bernardo, 2015. "Intertemporal coordination with delay options," Journal of Economic Theory, Elsevier, vol. 157(C), pages 793-810.
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    9. Stephen Morris & Ming Yang, 2016. "Coordination and Continuous Choice," Working Papers 087_2017, Princeton University, Department of Economics, Econometric Research Program..
    10. Zhen Zhou & Deepal Basak, 2015. "Diffusing Coordination Risk," 2015 Meeting Papers 1350, Society for Economic Dynamics.
    11. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.

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    More about this item

    Keywords

    Global games; Dynamic game; Coordination; Unique equilibrium; Welfare; Taxation;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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