Equilibrium Selection in Global Games with Strategic Complementarities

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson and van Damme (1993) for two player, two action games. Te surviving profile, however, may depend on fine details of the structure of the noise. We provide sufficient conditions on payoffs for there to be noise-independent selection.Equilibrium Selection, Global Games, Strategic Complementarities, Supermodular Games

Equilibrium Selection in Global Games with Strategic Complementarities

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson and van Damme (1993) for two player, two action games. The surviving profile, however, may depend on fine details of the structure of the noise. We provide sufficient conditions on payoffs for there to be noise-independent selection

Equilibrium Selection in Global Games with Strategic Complementarities

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the incomplete information game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson and van Damme for two player, two action games. The surviving profile, however, may depend on fine details of the structure of the noise. We provide sufficient conditions on payoffs for there to be noise-independent selection.

Contagion of Self-Fulfilling Financial Crises due to diversification of investment portfolios’,

ABSTRACT We explore a model with two countries. Each might be subject to a self-fulfilling crisis, induced by agents withdrawing their investments in the fear that others will do so. While the fundamentals of the two countries are independent, the fact that they share the same group of investors may generate a contagion of crises. The realization of a crisis in one country reduces agents' wealth and thus makes them more risk averse (we assume decreasing absolute risk aversion). This reduces their incentive to maintain their investments in the second country since doing so exposes them to the strategic risk associated with the unknown behavior of other agents. Consequently, the probability of a crisis in the second country increases. This yields a positive correlation between the returns on investments in the two countries even though they are completely independent in terms of fundamentals. We discuss the effect of diversification on the probabilities of crises and on welfare. Finally, we discuss the applicability of the model to real world episodes of contagion

Resolving Indeterminacy In Dynamic Settings: The Role Of Shocks

This paper shows that the phenomenon of multiple equilibria can be fragile to the introduction of aggregate shocks. We examine a standard dynamic model of sectoral choice with external increasing returns. Without shocks, the outcome is indeterminate: there are multiple rational expectations equilibria. We then introduce shocks in the form of a parameter that follows a Brownian motion and affects relative productivity in the two sectors. We assume that the parameter can reach values at which working in either sector becomes a dominant choice. A unique equilibrium emerges; for any path of the random parameter, there is a unique path that the economy must follow. There is no role for multiple, self-fulfilling prophecies or sunspots. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Equilibrium Selection in Global Games with Strategic Complementarities

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson and van Damme (1993) for two player, two action games. The surviving profile, however, may depend on fine details of the structure of the noise. We provide sufficient conditions on payoffs for there to be noise-independent selection