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On payoff heterogeneity in games with strategic complementarities

  • Antonio Ciccone
  • James Costain

Recent papers involving binary choices have argued that increasing heterogeneity decreases positive feedback. We show that no such result holds in models where all agents make interior choices. The results in the binary choice case arise for two reasons. First, if we increase heterogeneity without limit but impose a bounded choice set, then almost all players eventually become completely unresponsive, preferring some corner so strongly that they do not react to any feasible change in the behavior of others. Second, discrete choice permits the construction of strong, but fragile, positive feedbacks through composition effects. Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpf061
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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 56 (2004)
Issue (Month): 4 (October)
Pages: 701-713

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Handle: RePEc:oup:oxecpp:v:56:y:2004:i:4:p:701-713
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  1. Herrendorf, Berthold & Valentinyi, Akos & Waldmann, Robert, 2000. "Ruling Out Multiplicity and Indeterminacy: The Role of Heterogeneity," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 295-307, April.
  2. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
  3. Ricardo J. Caballero, 1991. "A Fallacy of Composition," NBER Working Papers 3735, National Bureau of Economic Research, Inc.
  4. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 869-905, August.
  5. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  6. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
  7. Schmutzler, Armin, 1998. "Changing places--the role of heterogeneity and externalities in cumulative processes," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 445-461, July.
  8. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
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