Fear of miscoordination and the robustness of cooperation in dynamic global games with exit

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Abstract

This paper develops a framework to assess how fear of miscoordination affects the sustainability of cooperation. Building on theoretical insights from Carlsson and van Damme (1993), it explores the effect of small amounts of private information on a class of dynamic cooperation games with exit. Lack of common knowledge leads players to second guess each other's behavior and makes coordination difficult. This restricts the range of equilibria and highlights the role of miscoordination payoffs in determining whether cooperation is sustainable or not. The paper characterizes the range of perfect Bayesian equilibria as the players' information becomes arbitrarily precise. Unlike in one-shot two-by-two games, the global games information structure does not yield equilibrium uniqueness.

Original languageEnglish (US)
Pages (from-to)973-1006
Number of pages34
JournalEconometrica
Volume78
Issue number3
DOIs
StatePublished - May 2010

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Cooperation
  • Dynamic games
  • Exit games
  • Fear of miscoordination
  • Global games
  • Local dominance solvability

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