We prove that, in all finite generic extensive-form games of perfect information, a continuous-time best response dynamic always converges to a Nash equilibrium component. We show the robustness of convergence by an approximate best response dynamic: whatever the initial state and an allowed approximate best response dynamic, the state is close to the set of Nash equilibria most of the time. In...

JEL classification:

Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the high-inflation steady state. The hyperinflationary paths are stable under learning if agents can utilize ...

We consider financial contracts that are tradable in any quantities at fixed prices. A bundle of such contracts constitutes an arbitrage if it offers non-negative payoff in any future state, but commands negative present cost. This article brings together fairly recent results on how to find an arbitrage provided some exists. Otherwise, a state-contingent, non-profit price vector will be identi...

This paper analyses a RBC model in continuous time featuring deterministic incremental development of technology and stochastic fundamental inventions arriving according to a Poisson process. Other than in standard RBC models, shocks are uncorrelated, irregular and rather seldom. In two special cases analytical solutions are presented. In the general case a delay differential equation (DDE) has...

Income Inequality, Mobility, and the Welfare State: A Political Economy Model In this paper, we set up a three-period stochastic overlapping generations model to analyze the implications of income inequality and mobility for demand for redistribution and social insurance. We model the size of two different public programs under the welfare state. We investigate bidimensional voting on the tax r...

One of the federal government’s main elementary and secondary education programs is Title I, which allocates money for compensatory education to school districts based on child poverty. I use sharp changes in per-pupil grant amounts surrounding the release of decennial census data to identify effects of Title I on state and local education revenue, and how much the program ultimately increases ...

We introduce the possibility that the receiver naively believes the sender’s message in a game of information transmission with partially aligned objectives. We characterize an equilibrium in which the communication language is inflated, the action taken is biased, and the information transmitted is more precise than in the benchmark fully-strategic model. We provide comparative statics results...