Local Discouragement and Global Collapse: A Theory of Coordination Avalanches
- (pp. 208-224)
AbstractWe 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.
Citation2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches." American Economic Review, 91(1): 208-224. DOI: 10.1257/aer.91.1.208
- 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