Diffusing Coordination Risk
34 Pages Posted: 11 Jul 2017 Last revised: 28 Apr 2020
Date Written: October 16, 2018
In a regime change game, agents sequentially decide whether to attack or not, without observing the past actions by others. To dissuade them from attacking, a principal adopts a dynamic information disclosure policy - repeated viability tests. A viability test publicly discloses whether the regime has survived the attacks so far. When such tests are sufficiently frequent, in the unique cutoff equilibrium, regardless of their private signals, agents never attack if the regime passes the latest test. We apply our theory to show that by sufficiently diffusing the rollover choices across different maturity dates, a borrower can eliminate panic-based runs.
Keywords: Coordination, Global Game, Information Design, Panic-based Runs, Persuasion
JEL Classification: C72, D82, D83, G28, G33
Suggested Citation: Suggested Citation