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Decentralization and the coordination problem

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  • Oechssler, Jorg

Abstract

This paper addresses the relation between the degree of decentralization in a population and the probability of coordinating on an efficient outcome. An evolutionary learning mechanism with a group structure that allows players to "vote with their feet" is introduced. In contrast to most of the recent literature (e.g. Kandori, Mailath and Rob, 1993) in which the risk dominant equilibrium is shown to prevail in the long run, in this paper it is demonstrated that given a general probability distribution over initial states the evolutionary learning process converges almost always to the efficient equilibrium if interaction is decentralized enough. Furthermore, it is shown how the model can be applied to the problem of product standardization.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 32 (1997)
Issue (Month): 1 (January)
Pages: 119-135

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Handle: RePEc:eee:jeborg:v:32:y:1997:i:1:p:119-135

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References

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  1. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
  2. José Canals & Fernando Vega-Redondo, 1998. "Multi-level evolution in population games," International Journal of Game Theory, Springer, vol. 27(1), pages 21-35.
  3. Noeldecke,Georg & Samuelson,Larry, . "An evolutionary analysis of backward and forward induction," Discussion Paper Serie B 228, University of Bonn, Germany.
  4. Joerg Oechssler, 1993. "Competition among Conventions," Game Theory and Information 9312001, EconWPA, revised 04 Dec 1993.
  5. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  6. Boyer, Robert & Orlean, Andre, 1992. "How Do Conventions Evolve?," Journal of Evolutionary Economics, Springer, vol. 2(3), pages 165-77, October.
  7. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  8. Joseph Farrell & Garth Saloner, 1986. "Installed Base and Compatibility, With Implications for Product Preannouncements," Working papers 411, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Oechssler, Jorg, 1997. "An Evolutionary Interpretation of Mixed-Strategy Equilibria," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 203-237, October.
  10. Vega-Redondo Fernando, 1993. "Competition and Culture in an Evolutionary Process of Equilibrium Selection: A Simple Example," Games and Economic Behavior, Elsevier, vol. 5(4), pages 618-631, October.
  11. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  12. Samuelson, L., 1991. "How to Tremble if you Must," Working papers 9122, Wisconsin Madison - Social Systems.
  13. Akihiko Matsui, 1989. "Cheap Talk and Cooperation in the Society," Discussion Papers 848, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Matsui, Akihiko, 1991. "Cheap-talk and cooperation in a society," Journal of Economic Theory, Elsevier, vol. 54(2), pages 245-258, August.
  15. Neil Gandal, 1994. "Hedonic Price Indexes for Spreadsheets and an Empirical Test for Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 160-170, Spring.
  16. Canning, D., 1990. "Social Equilibrium," Papers 150, Cambridge - Risk, Information & Quantity Signals.
  17. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  18. repec:fth:coluec:621 is not listed on IDEAS
  19. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  20. Kandori Michihiro & Rob Rafael, 1995. "Evolution of Equilibria in the Long Run: A General Theory and Applications," Journal of Economic Theory, Elsevier, vol. 65(2), pages 383-414, April.
  21. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  22. repec:fth:coluec:607 is not listed on IDEAS
  23. Sobel, Joel, 1993. "Evolutionary stability and efficiency," Economics Letters, Elsevier, vol. 42(2-3), pages 301-312.
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