Theoretical Economics, Volume 17, Number 2 ( 2022)

Theoretical Economics 17 (2022), 725–762

Markov distributional equilibrium dynamics in games with complementarities and no aggregate risk

Lukasz Balbus, Pawel Dziewulski, Kevin Reffett, Lukasz Wozny


We present a new approach to studying equilibrium dynamics in a class of stochastic games with a continuum of players with private types and strategic complementarities. We introduce a suitable equilibrium concept, called Markov Stationary Nash Distributional Equilibrium (MSNDE), prove its existence, and determine comparative statics of equilibrium paths and the steady state invariant distributions to which they converge. Finally, we provide numerous applications of our results including: dynamic models of growth with status concerns, social distance, and paternalistic bequests with endogenous preferences for consumption.

Keywords: Large games, distributional equilibria, supermodular games, comparative dynamics, non-aggregative games, social interactions

JEL classification: C62, C72, C73

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