Dynamic coordination with timing frictions: Theory and applications

Bernardo Guimaraes, Caio Machado, Ana Elisa Goncalves Pereira

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

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.

Original languageEnglish
Pages (from-to)656-697
Number of pages42
JournalJournal of Public Economic Theory
Volume22
Issue number3
DOIs
StatePublished - 1 Jun 2020

Bibliographical note

Funding Information:
We thank the editor Rabah Amir, the associate editor, an anonymous referee and the students of courses on Dynamic Coordination at the Sao Paulo School of Economics—FGV for their helpful comments and suggestions. Guimaraes gratefully acknowledges financial support from CNPq. Machado and Pereira gratefully acknowledge financial support from CONICYT through FONDECYT Iniciación grants #11180046 and #11190202, respectively.

Publisher Copyright:
© 2020 Wiley Periodicals, Inc.

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