Horizontal Coordination and Transparency of Information
Unal Zenginobuz  1, 2@  , Yunus Topbas  3@  
1 : Bogazici University
2 : Center for Economic Design  (Center for Economic Design (CED))
Bogazici University PK 2 Bebek 34342 Istanbul -  Turkey
3 : Northwestern University  -  Website
633 Clark Street Evanston, IL 60208 Evanston -  United States

Rational agents might choose to invest in a certain kind of capital in a period in

the hope of making higher returns from their investments made in consecutive peri-

ods. We examine the impact of such an interaction on the incidence of coordination

failure and accordingly social welfare. In our set-up, investment complementarities

are present both within periods (call vertical complementarity) and between periods

(call horizontal complementarity). In particular, other than the underlying economic

fundamental, the return on investment depends on its aggregate level in that pe-

riod as well as the aggregate investment made in the previous period. The results

suggest that full transparency is optimal at the social level as long as agents have

an access to relatively more precise private information and complementarities are

suciently low. More transparency otherwise reduces social welfare as the gain from

better vertical coordination is outweighed by the loss resulted from lesser horizontal

coordination.


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