On Myopic Equilibria in Dynamic Games with Endogenous Discounting
18 Pages Posted: 19 Jan 2007
Date Written: Janurary 2007
This paper derives an equilibrium for a competitive multi-stage game in which an agents' current action influences his probability of survival into the next round of play. This is directly relevant in banking, where a banks' current lending and pricing decisions determines its future probability of default. In technical terms, our innovation is to consider a multi-stage game with endogenous discounting. An equilibrium for such a multi-stage game with endogenous discounting has not been derived before in the literature.
Keywords: Banks, Loans, Economic models
JEL Classification: C72, C73, G21
Suggested Citation: Suggested Citation