Local Discouragement and Global Collapse: A Theory of Coordination Avalanches
Jeitschko, Thomas D., and
Curtis R. Taylor. 2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches."
American Economic Review,
We study a dynamic game in which all players initially possess the same information and coordinate on a high level of activity. Eventually, players with a long string of bad experiences become inactive. This prospect can cause a coordination avalanche in which all activity in the population stops. Coordination avalanches are part of Pareto-efficient equilibria; they can occur at any point in the game; their occurrence does not depend on the true state of nature; and allowing players to exchange information may merely hasten their onset. We present applications to search markets, organizational meltdown, and inefficient computer upgrades.
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Jeitschko, Thomas D. (TX A&M U)
Taylor, Curtis R. (Duke U)
D83: Search; Learning; Information and Knowledge; Communication; Belief
D23: Organizational Behavior; Transaction Costs; Property Rights
D63: Equity, Justice, Inequality, and Other Normative Criteria and Measurement