American Economic Review Vol. 91 No. 1 2001

Local Discouragement and Global Collapse: A Theory of Coordination Avalanches

Thomas D. Jeitschko¹; Curtis R. Taylor²

¹ Department of Economics, Texas A&M University, College Station, TX 77843. · ² Department of Economics, Duke University, P. O. Box 90097, Durham, NC 27708.

Abstract

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.

DOI

10.1257/aer.91.1.208

Volume

91

Issue

1

Pages

208-224

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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