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Dynamic coordination with timing frictions: Theory and applications

Bernardo Guimaraes, Caio Machado and Ana E. Pereira

Journal of Public Economic Theory, 2020, vol. 22, issue 3, 656-697

Abstract: We present a general framework of dynamic coordination with timing frictions. A continuum of agents receive random chances to choose between two actions and remain locked in the selected action until their next opportunity to reoptimize. The instantaneous utility from each action depends on an exogenous fundamental that moves stochastically and on the mass of agents currently playing each action. Agents' decisions are strategic complements and history matters. We review some key theoretical results and show a general method to solve the social planner's problem. We then review applications of this framework to different economic problems: network externalities, statistical discrimination, and business cycles. The positive implications of these models are very similar, but the social planner's solution points to very different results for efficiency in each case. Last, we review extensions of the framework that allow for endogenous hazard rates and ex ante heterogeneous agents.

Date: 2020
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https://doi.org/10.1111/jpet.12427

Related works:
Working Paper: Dynamic coordination with timing frictions: theory and applications (2017) Downloads
Working Paper: Dynamic coordination with timing frictions: theory and applications (2017) Downloads
Working Paper: Dynamic coordination with timing frictions: theory and applications (2017) Downloads
Working Paper: Dynamic Coordination with Timing Frictions: Theory and Applications (2017) Downloads
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Journal of Public Economic Theory is currently edited by Rabah Amir, Gareth Myles and Myrna Wooders

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