Local discouragement and global collapse: A theory of coordination avalanches
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2001-03-01
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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.
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Scholars@Duke
Curtis R. Taylor
Taylor's primary research interest is microeconomic theory with emphasis on the areas of Industrial Organization, Political Economy, and the Theory of Contracts. He has worked on a variety of topics such as: the optimal design of research contests, the causes and timing of market crashes, and consumer privacy. Professor Taylor's research has been supported by grants from the National Science Foundation, the U.S. Department of Agriculture, and the Texas Higher Education Coordinating Board, among others.
He served as an associate editor for the American Economic Review from 1995 to 2001, and is currently on the editorial boards of the RAND Journal of Economics, the Journal of Industrial Organization, the BE Journal of Theoretical Economics, and the BE Journal of Economic Analysis and Policy.
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