Investment dynamics with common and private values |
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Authors: | Dan Levin |
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Affiliation: | Department of Economics, The Ohio State University, 1945 N. High Street, Columbus, OH 43210, USA |
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Abstract: | We study a dynamic investment game with two-dimensional signals, where each firm observes its continuously distributed idiosyncratic cost of investment and a discrete signal correlated with common investment returns. We demonstrate that the one-step property holds and provide an equilibrium existence/characterization result. “Reversals” are possible, where a large number of firms investing in a given round becomes bad news about investment returns. Welfare is compared to static and rigid-timing benchmarks, and computed for large economies. |
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Keywords: | C73 D8 |
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