Local interactions refer to social and economic phenomena where individuals' choices are influenced by the choices of others who are close to them socially or geographically. This represents a fairly accurate picture of human experience. Furthermore, since local interactions imply particular...

We analyze a dynamic moral hazard problem in teams with imperfect monitoring in continuous time. In the model, players are working together to achieve a breakthrough in a project while facing a deadline. The effort needed to achieve a breakthrough is unknown but players have a common prior about...

In this paper we study a class of infinite horizon fully coupled forward-backward stochastic differential equations (FBSDEs), that are stimulated by various continuous time future expectations models with random coefficients. Under standard Lipschitz and monotonicity conditions, and by means of...

This paper studies global stability of spatial configurations in a dynamic two-region model with quadratic adjustment costs where rational migrants make migration decisions so as to maximize their discounted future utilities. A global analysis is conducted to show that, except for knife-edge...

Sets closed under rational behavior were introduced by Basu and Weibull (1991) as subsets of the strategy space that contain all best replies to all strategy profiles in the set. We here consider a more restrictive notion of closure under rational behavior: a subset of the strategy space is...

This paper illustrates that least squares learning may lead to suboptimal outcomes even when the estimated function perfectly fits the observations used in the regression. We consider the Salop model with three firms and two types of consumers that face different transportation costs. Firms do...

The concept of rationalizability has been used in the last fifteen years to study stability of equilibria in models with a continuum of agents such as competitive markets, macroeconomic dynamics and currency attacks. However, rationalizability has been formally defined in general settings only...

We examine the nonlinear model Xt = Et F(xt+1) . Markov SSEs exist near an indeterminate steady state, X = F(X), provided F´(X)> 1. We show that there exist Markov SSEs that are E-stable, and therefore locally stable under adaptive learning, if F´(X)< -1.

We consider the stability under adaptive learning of the complete set of solutions to the model when . In addition to the fundamentals solution, the literature describes both finite-state Markov sunspot solutions, satisfying a resonant frequency condition, and autoregressive solutions depending...

The recent macroeconomic literature stresses the importance of managing heterogeneous expectations in the formulation of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative interest rate rules when agents have heterogeneous...