When are Agents Negligible?

Wolfgang Pesendorfer () and David Levine

No 1018, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We examine the following paradox: In a dynamic setting, an arbitrarily large finite number of agents adn a continuum of agents can lead to radically different equilibrium outcomes. We show that in a simple strategic setting this paradox is a general phenomenon. We also show that the paradox disappears when there is noisy observation of the players' actions: The aggregate level of noise must disappear as the number of players increases, but not too rapidly. We give several economic examples in which this paradox has recently received attention: the durable goods monopoly, corporate takeovers, and time consistency of optimal governmetn policy.

Date: 1992-11
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Related works:
Journal Article: When Are Agents Negligible? (1995)
Working Paper: When Are Agents Negligible? (1995)
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