On Preemption in Discrete and Continuous Time

Jan-Henrik Steg ()

Dynamic Games and Applications, 2018, vol. 8, issue 4, No 12, 918-938

Abstract: Abstract The seminal work of Fudenberg and Tirole (Rev Econ Stud 52(3):383–401, 1985) on how preemption erodes the value of an option to wait raises general questions about the relation between models in discrete and continuous time and thus about the interpretation of its central result, relying on an “infinitely fine grid”. Here, it is shown that, for a class of timing games including the model of Fudenberg and Tirole, their solution concept is indeed the limit of symmetric subgame-perfect equilibria of the game when restricted to any sequence of grids becoming infinitely fine. Furthermore, additional subgame-perfect equilibria using conventional continuous-time mixed strategies are identified.

Keywords: Preemption; Discrete time; Continuous time; Subgame-perfect equilibrium; Convergence; 91A05; 91A10; 91A25; 91A50; 91A55 (search for similar items in EconPapers)
Date: 2018
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Working Paper: On preemption in discrete and continuous time (2016)
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DOI: 10.1007/s13235-017-0232-8

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