Strategic complements, substitutes, and ambiguity: the implications for public goods
Universität Heidelberg; University of Birmingham, now at University of Exeter
Journal of Economic Theory
We examine the effect of ambiguity in symmetric games with aggregate externalities. We find that ambiguity will increase/decrease the equilibrium strategy in games with strategic complements/substitutes and positive externalities. These effects are reversed in games with negative externalities. We consider some economic applications of these results to Cournot oligopoly, bargaining, macroeconomic coordination, and voluntary donations to a public good. In particular we show that ambiguity may reduce free-riding. Comparative statics analysis shows that increases in uncertainty will increase donations, to a public good.
Research supported by ESRC senior research fellowship, Award H52427502595, ESRC Grant R000222597
Author's pre-print draft
Journal of Economic Theory, 2002, 106, 436-466