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On the geography of conventions

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Author Info

  • Andreas Blume
  • Ted Temzelides

Abstract

We study a model in which heterogenous boundedly rational agents interact locally in order to play a coordination game. Agents differ in their mobility with mobile agents being able to relocate within a country. The model yields the following predictions: (1) mobile agents always benefit from increased mobility, (2) immobile agents benefit from increased mobility at low levels of mobility, (3) immobile agents lose from increased mobility at high levels of mobility, (4) there is an optimal ``country size,'' (5) ``income inequality'' is weakly increasing in mobility, (6) if there are arbitrarily small payoff differences between two countries, opening borders causes a ``brain drain'' effect; in the long run, all mobile agents reside in the favored (former) country and efficiency is attained only in that country.

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File URL: http://hdl.handle.net/10.1007/s00199-002-0350-3
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 22 (2003)
Issue (Month): 4 (November)
Pages: 863-873

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Handle: RePEc:spr:joecth:v:22:y:2003:i:4:p:863-873

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Related research

Keywords: Keywords and Phrases: Evolutionary dynamics; Restricted mobility; Equilibrium selection.; JEL Classification Numbers: C72.;

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References

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  1. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  2. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
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Cited by:
  1. Peski, Marcin, 2010. "Generalized risk-dominance and asymmetric dynamics," Journal of Economic Theory, Elsevier, vol. 145(1), pages 216-248, January.
  2. Simon Weidenholzer, 2010. "Coordination Games and Local Interactions: A Survey of the Game Theoretic Literature," Games, MDPI, Open Access Journal, vol. 1(4), pages 551-585, November.

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