Kováč, Eugen, and Jakub Steiner. 2013. “Reversibility in Dynamic Coordination Problems.”
Games and Economic Behavior, 77(1): 298–320.
We study a dynamic coordination process in which agents are uncertain about the actions of their fellow agents, and anticipate strategically relevant information. Because of the uncertainty and learning, (ir)reversibility of actions has important strategic consequences. We find that the reversibility option can either enhance or hamper efficient coordination, and we characterize the direction of the effect based solely on simple features of the coordination problem. The analysis is based on the following generalization of the Laplacian property known from static global games: agents at the beginning of the dynamic game act as if they were entirely uninformed about the aggregate play of fellow agents in each stage of the coordination process.
Keywords: Delay; Exit; Global games; Laplacian belief; Learning; Option; Reversibility