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A Contraction Principle for Finite Global Games

Mathevet, Laurent (2005) A Contraction Principle for Finite Global Games. Social Science Working Paper, 1243. California Institute of Technology , Pasadena, CA. (Unpublished)

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I provide a new proof of uniqueness of equilibrium in a wide class of global games. I show that the joint best-response in these games is a contraction. The uniqueness result then follows as a corollary of the contraction property. Furthermore, the contraction mapping approach provides a revealing intuition for why uniqueness arises: Complementarities in games generate multiplicity of equilibria, but the global games structure dampens complementarities so that only one equilibrium exists. I apply my result to show that uniqueness is obtained through contraction in currency crises and Diamond’s search models.

Item Type:Report or Paper (Working Paper)
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Additional Information:Revised (this verison) March 2006. This paper is a shortened version of the first chapter of my dissertation at Caltech. I am profoundly grateful to my advisors, Federico Echenique and Matt Jackson, for their help and encouragement. I also wish to thank Kim Border, Chris Chambers, Jon Eguia, Chryssi Giannitsarou, Preston McAfee, Andrea Mattozzi, Stephen Morris, Laura Panattoni, Flavio Toxvaerd, and David Young for helpful comments and suggestions. The Division of Humanities and Social Sciences at Caltech and Matt Jackson are gratefully acknowledged for financial support.
Group:Social Science Working Papers
Funding AgencyGrant Number
Caltech Division of Humanities and Social SciencesUNSPECIFIED
Matthew O. JacksonUNSPECIFIED
Subject Keywords:Global games, equilibrium uniqueness, contraction mapping, strategic complementarities, supermodular games
Series Name:Social Science Working Paper
Issue or Number:1243
Classification Code:JEL: C72, D82
Record Number:CaltechAUTHORS:20170802-112102549
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79763
Deposited By: Hanna Storlie
Deposited On:02 Aug 2017 18:41
Last Modified:03 Oct 2019 18:23

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