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Seeking Harmony Amidst Diversity: Consensus Building with Network Externalities

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  • Junichiro Ishida
  • Chia-Hui Chen

Abstract

A group of individuals, with a potential conflict of interest, face a choice among alternatives. There is a network externality such that the chosen alternative yields value only if sufficiently many individuals get on board. Their preferences for each alternative and the benefit derived from a successfully formed network are known only privately and might vary between the players who determine whether to make their choices early or late. We characterize the equilibrium timing of adoption as well as the efficient timing which maximizes the total expected payoff. We also show that the efficient timing of adoption can be implemented by a simple fee scheme. The analysis gives an insight into why consensus is often hard-won in some societies and suggests a potential role of social norms in improving the efficiency.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0826.

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Date of creation: Dec 2011
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Handle: RePEc:dpr:wpaper:0826

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  1. Farrell, Joseph & Shapiro, Carl, 1988. "Dynamic Competition with Switching Costs," Department of Economics, Working Paper Series qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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