Instantaneous Information Always Stabilizes?
University of Macau
Nanyang Technological University (NTU) - School of Humanities & Social Sciences
January 15, 2011
The impact of information improvement on local stability is examined for continuous dynamics. It is conventionally believed that removal of uncertainty always brings additional stability to an existing equilibrium. This paper shows that the relation between information and equilibrium stability may not be monotonic. Removal of information lag may sometimes destabilize the otherwise stable continuous model. Economic applications to Cournot and Bertrand competition are examined where the role of improved information on stability is shown to be cost-structure specific. Elimination of lags may cause stability loss. The conclusion drawn on two-dimensional continuous dynamics is briefly generalized to multiple-dimensional system.
working papers series
Date posted: January 31, 2011
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