Information, Coordination, and the Industrialization of Countries

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.