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Who Matters in Coordination Problems?

  • József Sákovics
  • Jakub Steiner

Agents face a coordination problem akin to the adoption of a network technology. A principal announces investment subsidies that, at minimal cost, attain a given likelihood of successful coordination. Optimal subsidies target agents who impose high externalities on others and on whom others impose low externalities. Based on the analysis of the role of strategic uncertainty in coordination processes, we provide a methodology that can be used to find the optimal targets for a variety of interventions in a large class of coordination problems with heterogeneous agents. (JEL D81, D82, D83, O33)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 7 (December)
Pages: 3439-61

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:7:p:3439-61
Note: DOI: 10.1257/aer.102.7.3439
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  1. Bernardo Guimaraes & Stephen Morris, 2006. "Risk and wealth in a model of self-fulfilling currency attacks," LSE Research Online Documents on Economics 4804, London School of Economics and Political Science, LSE Library.
  2. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2004. "Does One Soros Make a Difference? A Theory of Currency Crises with Large and Small Traders," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 87-113.
  3. Sah, R.K., 1990. "Social Osmosis And Patterns Of Crime: A Dynamic Economic Analysis," Papers 609, Yale - Economic Growth Center.
  4. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
  5. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
  6. 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.
  7. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
  8. David M. Frankel & Stephen Morris & Ady Pauzner, 2000. "Equilibrium Selection in Global Games with Strategic Complementarities," Econometric Society World Congress 2000 Contributed Papers 1490, Econometric Society.
  9. Carlsson, H. & van Damme, E.E.C., 1993. "Global games and equilibrium selection," Other publications TiSEM 49a54f00-dcec-4fc1-9488-4, Tilburg University, School of Economics and Management.
  10. Dasgupta, Amil, 2007. "Coordination and delay in global games," Journal of Economic Theory, Elsevier, vol. 134(1), pages 195-225, May.
  11. Itay Goldstein & Ady Pauzner, 2005. "Demand-Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, 06.
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