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Unraveling Coordination Problems

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The interplay between strategic beliefs and policy complicates policy design in coordination games. To untangle this relationship, we study policy design in the context of equilibrium selection. We characterize the unique subsidy scheme that selects a targeted strategy vector as the unique equilibrium of a coordination game. These subsidies are continuous in model parameters and do not make the targeted strategies strictly dominant. While discrimination is optimal in games with multiple equilibria (Segal, 2003; Winter, 2004), we construct a non-discriminatory subsidy scheme the cost of which converges to that of a least-cost discriminatory policy when agents are symmetric.

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  • Heijmans, Roweno J.R.K., 2023. "Unraveling Coordination Problems," Discussion Papers 2023/20, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2023_020
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    More about this item

    Keywords

    Coordination; global games; contracting with externalities; incentives in teams; networks; unique implementation;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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