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A Note on Equilibrium Selection in Polya-Urn Coordination Games

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Author Info
Giorgio Fagiolo () (Department of Economics, University of Verona, Verona (Italy) and Laboratory of Economics and Management, Sant'Anna School of Advanced Studies, Pisa (Italy).)

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Abstract

We study equilibrium selection in coordination games played by a population of agents whose size increases over time. We assume that, in each time period, a new player enters the economy, observes current strategy shares and irreversibly chooses a strategy on the basis of expected payoffs. We employ a simple Polya-Urn scheme to discuss the efficiency of long-run equilibria under alternative individual decision rules (e.g. best-reply, logit, etc.). We show that the system delivers a predictable outcome only when agents employ either a linear or a logit probability rule. If agents employ deterministic best-reply rules, Pareto-efficient coordination can occur, but the actual outcome depends on initial conditions and chance. In all other cases, coexistence of strategies characterizes equilibrium configurations. Finally, we discuss our findings in the framework of technological adoption models.

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File URL: http://economicsbulletin.vanderbilt.edu/2005/volume3/EB-05C70028A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 3 (2005)
Issue (Month): 45 ()
Pages: 1-14
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:3:y:2005:i:45:p:1-14

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Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
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Related research
Keywords: Coordination Games; Equilibrium Selection; Pareto-Efficient vs. Risk-Dominant Equilibrium; Polya-Urn Schemes.; Technological Adoption;

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Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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    Other versions:
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    Other versions:
  4. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September. [Downloadable!] (restricted)
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  10. Fagiolo, Giorgio, 2005. "Endogenous neighborhood formation in a local coordination model with negative network externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 297-319, January. [Downloadable!] (restricted)
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  15. Richard R Nelson & Alexander Peterhansl & Bhaven Sampat, 2004. "Why and how innovations get adopted: a tale of four models," Industrial and Corporate Change, Oxford University Press, vol. 13(5), pages 679-699, October.
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