Larson, N.; (2003) Strategic delay and efficiency in global games. (ELSE Working Papers 74). ESRC Centre for Economic Learning and Social Evolution: London, UK.

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Abstract

The global games literature shows that perturbing a complete information coordination game with correlated private information unleashes strategic uncertainty that can act, in domino fashion, to rule out all but a single dominance-solvable equilibrium. We show (in a two-player model) that when players also have the option to delay acting, the domino chain is broken, and multiple equilibria resurface. Furthermore, the combination of strategic uncertainty and the option to delay can have a salubrious effect — inefficiency in all equilibria is lower than without delay and vanishes as the delay cost goes to zero.

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