WHEN ARE AGENTS NEGLIGIBLE

We examine the following paradox: in a dynamic setting equilibria can be radically different in a model with a finite number of agents than in a model with a continuum of agents. We present a simple strategic s etting in which this paradox is a general phenomenon. However the para dox disappears when there is noisy observation of the players' actions , and the aggregate level of noise does not disappear too rapidly as t he number of players increases. We give several economic examples in w hich this paradox has recently received attention: durable-goods monop oly, corporate takeovers, and time consistency of optimal government p olicy.