Tractable dynamic global games and applications

Laurent Mathevet and Jakub Steiner

Journal of Economic Theory, 2013, vol. 148, issue 6, 2583-2619

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.

Keywords: Global games; Dynamic game; Coordination; Unique equilibrium; Welfare; Taxation (search for similar items in EconPapers)
JEL-codes: C7 D8 H2 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:6:p:2583-2619

DOI: 10.1016/j.jet.2013.07.015

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