IDEAS home Printed from
   My bibliography  Save this paper

A Simple Inducement Scheme to Overcome Adoption Externalities


  • In-Uck Park



Potential customers of network commodities face coordination problems due to adoption externalities that give rise to multiple, Pareto-ranked equilibria. We investigate the extent to which the coordination problem can be resolved by inducement schemes when agents’ preferences are private information. Specifically, we show that all symmetric “cut-off strategy” profiles (agents adopt if and only if their type is below a threshold) constitute the set of profiles that can be implemented as a unique equilibrium under an inducement scheme. We derive the ex ante cost of implementing each such profile. Furthermore, we fully characterize the set of inducement schemes that I) implement each such profile and ii) have the following simple form: each scheme specifies a fixed fee that every adopter pays, and a fixed gross subsidy/prize to be randomly allocated to (or evenly split among) the adopters. We discuss the implications of these findings on the design of optimal schemes for different network organizers, namely, private entrepreneurs and public entities.

Suggested Citation

  • In-Uck Park, 2003. "A Simple Inducement Scheme to Overcome Adoption Externalities," The Centre for Market and Public Organisation 03/085, Department of Economics, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:03/085

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Dybvig, Philip H. & Spatt, Chester S., 1983. "Adoption externalities as public goods," Journal of Public Economics, Elsevier, vol. 20(2), pages 231-247, March.
    2. Leslie M. Marx & Steven A. Matthews, 2000. "Dynamic Voluntary Contribution to a Public Project," Review of Economic Studies, Oxford University Press, vol. 67(2), pages 327-358.
    3. Gradstein, Mark, 1992. "Time Dynamics and Incomplete Information in the Private Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 581-597, June.
    4. Gale, Douglas, 1995. "Dynamic Coordination Games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(1), pages 1-18, January.
    5. Mark Bagnoli & Barton L. Lipman, 1989. "Provision of Public Goods: Fully Implementing the Core through Private Contributions," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 583-601.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:pit:wpaper:233 is not listed on IDEAS
    2. Ochs, Jack & Park, In-Uck, 2010. "Overcoming the coordination problem: Dynamic formation of networks," Journal of Economic Theory, Elsevier, vol. 145(2), pages 689-720, March.
    3. Shichijo Tatsuhiro & Nakayama Yuji, 2009. "A Two-Step Subsidy Scheme to Overcome Network Externalities in a Dynamic Game," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-20, February.
    4. Masaki Aoyagi, 2010. "Monopoly Sale of a Network Good," ISER Discussion Paper 0794, Institute of Social and Economic Research, Osaka University.
    5. In-Uck Park, 2004. "Dynamic Formation of Network with Adoption Externalities," Econometric Society 2004 Far Eastern Meetings 662, Econometric Society.
    6. Aoyagi, Masaki, 2013. "Coordinating adoption decisions under externalities and incomplete information," Games and Economic Behavior, Elsevier, vol. 77(1), pages 77-89.

    More about this item


    adoption externality; coordination; inducement scheme;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bri:cmpowp:03/085. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.