Tractable dynamic global games and applications

Laurent Mathevet, Jakub Steiner

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    Pages (from-to)2583-2619
    Number of pages37
    JournalJournal of Economic Theory
    Volume148
    Issue number6
    DOIs
    StatePublished - Nov 2013

    Keywords

    • Coordination
    • Dynamic game
    • Global games
    • Taxation
    • Unique equilibrium
    • Welfare

    ASJC Scopus subject areas

    • Economics and Econometrics

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