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Coordination, Local Interactions, and Endogenous Neighborhood Formation

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  • Giorgio Fagiolo

Abstract

The paper presents a local interaction model of coordination with spatially-located agents who simultaneously choose stage-game strategies and adaptively learn how to choose their neighbors. We analyze the behavior of the system when network externalities become eventually negative as neighborhood sizes increase. We show that the society can robustly reach in the long-run steady states characterized by high levels of coordination and small average neighborhood sizes. Moreover, we find that: (i) neighborhood adjustment allows for higher coordination than if interaction structures were static; and: (ii) large populations attain higher coordination provided that average initial neighborhood sizes are not too small.

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Bibliographic Info

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2002 with number 98.

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Date of creation: 01 Jul 2002
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Handle: RePEc:sce:scecf2:98

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Related research

Keywords: Spatial Coordination; Nearest-Neighbor Interactions; Endogenous Neighborhood Formation; Network Dynamics.;

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References

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  1. Goyal, S. & Vega-Redondo, F., 2000. "Learning, Network Formation and Coordination," Econometric Institute Research Papers EI 9954-/A, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  2. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
  3. Alan Kirman, 1997. "The economy as an evolving network," Journal of Evolutionary Economics, Springer, vol. 7(4), pages 339-353.
  4. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
  5. George A. Akerlof, 1997. "Social Distance and Social Decisions," Econometrica, Econometric Society, vol. 65(5), pages 1005-1028, September.
  6. Richard Arnott & Kenneth Small, 1993. "The Economics Of Traffic Congestion," Boston College Working Papers in Economics 256, Boston College Department of Economics.
  7. Robin Cowan & William Cowan & G.M. Peter Swann, 2004. "Waves in consumption with interdependence among consumers," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 149-177, February.
  8. Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
  9. Page, Scott E, 1997. "On Incentives and Updating in Agent Based Models," Computational Economics, Society for Computational Economics, vol. 10(1), pages 67-87, February.
  10. Blume Lawrence E., 1995. "The Statistical Mechanics of Best-Response Strategy Revision," Games and Economic Behavior, Elsevier, vol. 11(2), pages 111-145, November.
  11. H. Peyton Young, 1996. "The Economics of Convention," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 105-122, Spring.
  12. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  13. repec:att:wimass:9426 is not listed on IDEAS
  14. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  15. Dieckmann, Tone, 1999. "The evolution of conventions with mobile players," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 93-111, January.
  16. Goyal, Sanjeev & Janssen, Maarten C. W., 1997. "Non-Exclusive Conventions and Social Coordination," Journal of Economic Theory, Elsevier, vol. 77(1), pages 34-57, November.
  17. Watts, Alison, 2001. "A Dynamic Model of Network Formation," Games and Economic Behavior, Elsevier, vol. 34(2), pages 331-341, February.
  18. Edward Droste & Robert P. Gilles & Cathleen Johnson, 2000. "Evolution of Conventions in Endogenous Social Networks," Econometric Society World Congress 2000 Contributed Papers 0594, Econometric Society.
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Cited by:
  1. Giorgio Fagiolo & Luigi Marengo & Marco Valente, . "Endogenous Networks in Random Population Games," Modeling, Computing, and Mastering Complexity 2003 05, Society for Computational Economics.
  2. Lanny Arvan & David Nickerson, 2006. "Private Investment, Public Aid and Endogenous Divergence in the Evolution of Urban Neighborhoods," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 83-100, February.
  3. Sommarat Chantarat & Christopher Barrett, 2012. "Social network capital, economic mobility and poverty traps," Journal of Economic Inequality, Springer, vol. 10(3), pages 299-342, September.

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