Published in:
Journal of Economic Theory 2015 158 (B) p.p. 739–768.
DOI:10.1016/j.jet.2014.03.005
Abstract:
When crises potentially originate from coordination failures, does a deterioration in the quality of the information available to market participants contribute towards instability? We address this question in a general global game of regime change with a unique equilibrium and illustrate the implications in a debt rollover application. We show that a reduction in the quality of information increases the likelihood of regime change, thus reducing stability, when the net payoff in the case of a successful attack is more sensitive to the fundamentals than the net payoff in the case of status quo survival. We also discuss welfare implications.