Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
956756 | Journal of Economic Theory | 2013 | 35 Pages |
Abstract
I add heterogeneous agents and risk-sharing opportunities to a global game of regime change. The novel insight is that when there is a risk-sharing motive, fundamentals drive not only individual behavior, but also select which individuals are more relevant for the likelihood of a crisis because of endogenous shifts in wealth. If attacking is relatively safe, attack behavior in the global game and trade in state-contingent assets feed back into each other. This feedback implies that multiple equilibria may exist even if signal noise becomes arbitrarily small. In addition, heterogeneity in risk-aversion within the population amplifies the influence of the state of the economy on the probability of a crisis.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Rodolfo G. Campos,