Diffusing Coordination Risk

Basak, D and Zhou, Z (2018) Diffusing Coordination Risk. Working Paper. SSRN. (Unpublished)

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Abstract

In a regime change game, agents sequentially decide whether to attack or not, without observing the past actions by others. To dissuade them from attacking, a principal adopts a dynamic information disclosure policy - repeated viability tests. A viability test publicly discloses whether the regime has survived the attacks so far. When such tests are sufficiently frequent, in the unique cutoff equilibrium, regardless of their private signals, agents never attack if the regime passes the latest test. We apply our theory to show that by sufficiently diffusing the rollover choices across different maturity dates, a borrower can eliminate panic-based runs.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Basak, DUNSPECIFIED
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Coordination, Global Game, Information Dynamics, Self-fulfilling Runs
Subjects: Economics
Depositing User: Veeramani R
Date Deposited: 15 May 2019 15:55
Last Modified: 15 May 2019 15:55
URI: http://eprints.exchange.isb.edu/id/eprint/962
Publisher URL: http://dx.doi.org/10.2139/ssrn.2999636
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