Research Talk for November 22, 2019
Zhen Zhou, Tsinghua University
November 22, 2019
UW Bothell main campus
We consider a regime change game but allow the agents to attack within a short time window. Attack is irreversible and delayed attack is costly. There could be panic-based attacks, i.e., the agents attack thinking others will attack, even though it is not warranted. We propose a simple dynamic information disclosure policy, called “dis-aster alert”, which at a given date publicly discloses whether the regime is doomed to fail. We show that a timely alert persuades the agents to wait for the alert and not at-tack if the alert is not triggered, regardless of their private signals, and thus, eliminates panic. If the time window is large, then the agents may receive additional informa-tion over time and panic may reappear. However, repeated timely disaster alerts stop agents from panicking. We build an example of FDI outflow from an emerging mar-ket, in which the disaster alerts manifest endogenously and dissuade the investors from exiting the market.
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