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CESifo Economic Studies Advance Access published online on February 20, 2008
CESifo Economic Studies, doi:10.1093/cesifo/ifn006
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© The Author 2008. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Information, Coordination and the Industrialization of Countries

Florian Englmaier* and Markus Reisinger{dagger}

* University of Munich, Ludwigstr. 28 III VG, 80539 Munich, Germany, e-mail: englmaier{at}lmu.de
{dagger} University of Munich, Economics Department, Kaulbachstr. 45, 80539 Munich, Germany, e-mail: markus.reisinger{at}lrz.uni-muenchen.de

The industrialization process of a country is often plagued by a failure to coordinate investment decisions. Using the Global Games approach we can solve this coordination problem and eliminate the problem of multiple equilibria. We show how appropriate information provision enhances efficiency. We discuss extensions of the model and argue that subsidies may be a property of a signalling equilibrium to overcome credibility problems in information provision. In addition, we point out possible problems with overreaction to public information. Furthermore, we suggest a new focus for development policy. (JEL codes: C72, C79, D82, F21, O12, O14)

Key Words: information • coordination • industrialization • development • Global Games • equilibrium refinements • big push


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