Information quality and crises in regime-change games

Wednesday, 02 September 2015 - Plamen Nenov


When crises potentially originate from coordination failures, does a deterioration in the quality of the information available to market participants contribute towards instability? We address this question in a general global game of regime change with a unique equilibrium and illustrate the implications in a debt rollover application. We show that a reduction in the quality of information increases the likelihood of regime change, thus reducing stability, when the net payo in the case of a successful attack is more sensitive to the fundamentals than the net payo in the case of status quo survival. We also discuss welfare implications.

 Iachan, Felipe S. and Plamen T. Nenov. 2015. “Information quality and crises in regime-change games.” Journal of Economic Theory, 158(Part B):739-768

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