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Local Interactions and Switching Costs

  • Ge Jiang
  • Simon Weidenholzer

    ()

We study the impact of swtiching costs on the long run outcome in 2x2 conordination games played in the circular city model oflocal interactions. For low levels of switiching costs the predictions are in line with the previous literature and the risk dominant convention is the unique long run equilibrium. For intermediate levels of switching costs the set oflong run equilibria still contain the risk dominant convention but may also contain conventions that are not risk dominant. For high levels of switching costs also non-monomorphic states will be included in the set of long run equilibria. Finally, we reconcile our result with a recent paper by Norman (2009) by considering the case of large interaction neighborhoods in large populations.

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 746.

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Date of creation: 11 Jan 2014
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Handle: RePEc:esx:essedp:746
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  1. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  2. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  3. Thomas Norman, 2007. "Rapid Evolution under Inertia," Economics Series Working Papers 299, University of Oxford, Department of Economics.
  4. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  5. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, June.
  6. Kim, Chongmin & Wong, Kam-Chau, 2010. "Long-run equilibria with dominated strategies," Games and Economic Behavior, Elsevier, vol. 68(1), pages 242-254, January.
  7. Simon Weidenholzer, 2010. "Coordination Games and Local Interactions: A Survey of the Game Theoretic Literature," Games, MDPI, Open Access Journal, vol. 1(4), pages 551-585, November.
  8. Eshel, Ilan & Samuelson, Larry & Shaked, Avner, 1998. "Altruists, Egoists, and Hooligans in a Local Interaction Model," American Economic Review, American Economic Association, vol. 88(1), pages 157-79, March.
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