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Volkswirtschaft - Open Access LMU - Teil 03/03 Podcast
Breakdowns

Breakdowns

Volkswirtschaft - Open Access LMU - Teil 03/03 vor 13 Jahren

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We study a continuous-time game of strategic experimentation in
which the players try to assess the failure rate of some new
equipment or technology. Breakdowns occur at the jump times of a
Poisson process whose unknown intensity is either high or low. In
marked contrast to existing models, we find that the cooperative
value function does not exhibit smooth pasting at the efficient
cut-off belief. This finding extends to the boundaries between
continuation and stopping regions in Markov perfect equilibria. We
characterize the unique symmetric equilibrium, construct a class of
asymmetric equilibria, and elucidate the impact of bad versus good
Poisson news on equilibrium outcomes.