American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Local Discouragement and Global Collapse: A Theory of Coordination Avalanches
American Economic Review
(pp. 208–224)
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.Citation
Jeitschko, Thomas, D., and Curtis R. Taylor. 2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches." American Economic Review 91 (1): 208–224. DOI: 10.1257/aer.91.1.208JEL Classification
- 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