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Assortative Interactions and Endogenous Stratification

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  • Susan Lee
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    Abstract

    An evolutionary model is used to examine how the presence of strategic risk and exclusion in interactions on the basis of economic class differences (assortive matching) can explain persistent inequality. A large population of agents is matched asynchronously according to a wealth-weighted probability distribution to play a 2 x 2 coordination game with a Pareto dominant equilibrium and a risk dominant equilibrium. Best response dynamics eventually select the inferior equilibrium, but with sufficiently strong exclusion inequality arises and persists for arbitrarily long finite periods. In particular, exclusion increases the probability that an upper class will arise. In an environment with strategic risk, exclusion helps preserve confidence in the good equilibrium strategy but also perpetuates inequality.

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    Bibliographic Info

    Paper provided by Santa Fe Institute in its series Working Papers with number 99-08-056.

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    Date of creation: Aug 1999
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    Handle: RePEc:wop:safiwp:99-08-056

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    Keywords: Endogenous interactions; stratification; evolution of conventions;

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    19. Steven N. Durlauf, 1997. "The Memberships Theory of Inequality: Ideas and Implications," Research in Economics 97-05-047e, Santa Fe Institute.
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