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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.
