Dynamic Games with Asymmetric Information: A Framework for Empirical Work

Chaim Fershtman and Ariel Pakes

The Quarterly Journal of Economics, 2012, vol. 127, issue 4, 1611-1661

Abstract: We develop a framework for the analysis of dynamic oligopolies with persistant sources of asymmetric information that enables applied analysis of situations of empirical importance that have been difficult to deal with. The framework generates policies that are "relatively" easy for agents to use while still being optimal in a meaningful sense, and is amenable to empirical research in that its equilibrium conditions can be tested and equilibrium policies are relatively easy to compute. We conclude with an example that endogenizes the maintenance decisions of electricity generators when the costs states of the generators are private information. Copyright 2012, Oxford University Press.

Date: 2012
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