Nonstationary Oblivious Equilibrium
Coauthor(s): C. Lanier Benkard, Przemyslaw Jeziorski, Benjamin Van Roy.
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In this paper we introduce an important extension to oblivious equilibrium (OE). OE offers a way to approximate long-run Markov perfect industry dynamics with many firms, and it could be used if one is interested in long-run economic indicators, such as long-run average investment. These quantities are independent of the initial state of the industry. In other cases, one may be interested in the short-run dynamic behavior of an industry starting from a given initial condition. For example, one may want to asses how an industry would evolve over a few years after a policy or environmental change. With this motivation, we introduce a nonstationary notion of OE in which every firm knows the industry state in the initial period but does not update this knowledge after that point. We call this new equilibrium concept, nonstationary oblivious equilibrium (NOE). NOE is based on the same idea as oblivious equilibrium but it offers a way to approximate short-run transitional dynamics that may result, for example, from shocks or policy changes.
Source: Working Paper
Weintraub, Gabriel, C. Lanier Benkard, Przemyslaw Jeziorski, and Benjamin Van Roy. "Nonstationary Oblivious Equilibrium." Working Paper, Columbia Business School, November 2008.