A local interaction game is a game where agents play an identical stage game against their neighbors over time. This paper obtains a general result on the long-run equilibrium distribution of the local interaction game whose stage game is the 2 x 2 coordination game. It is established that starting from a random initial configuration with a positive probability of playing the risk dominant strategy, a sufficiently large population coordinates on the risk dominant equilibrium with probability 1 for the nearest neighbor interaction Our result improves previous ones including Blume (1995), Ellison (1993,1995), and Morris (1997) in a non-trivial way. It proves that there is an interactive contagion mechanism through which the risk dominant equilibrium may spread, in addition to the autonomous mechanism considered by others. Taking advantage of the mechanism we prove that for the nearest neighbor interaction, half dominance is sufficient for the degenerate long-run equilibrium distribution concentrated on the risk dominant strategy.
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- Groves, Theodore & Ledyard, John O, 1977.
"Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem,"
Econometric Society, vol. 45(4), pages 783-809, May.
- Theodore Groves & John Ledyard, 1976. "Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem'," Discussion Papers 144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hurwicz, Leonid, 1979. "On allocations attainable through Nash equilibria," Journal of Economic Theory, Elsevier, vol. 21(1), pages 140-165, August.
- Groves, Theodore & Ledyard, John O, 1980. "The Existence of Efficient and Incentive Compatible Equilibria with Public Goods," Econometrica, Econometric Society, vol. 48(6), pages 1487-1506, September.
- Groves, Theodore & Ledyard, John O., 1978. "The Existence of Efficient and Incentive Compatible Equilibria with Public Goods," Working Papers 203, California Institute of Technology, Division of the Humanities and Social Sciences.
- L. Hurwicz, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 217-225.
- Tian, Guoqiang, 1988. "On the constrained Walrasian and Lindahl correspondences," Economics Letters, Elsevier, vol. 26(4), pages 299-303.
- Laffont, Jean-Jacques & Maskin, Eric, 1980. "A Differential Approach to Dominant Strategy Mechanisms," Econometrica, Econometric Society, vol. 48(6), pages 1507-1520, September.
- Guoqiang Tian, 1989. "Implementation of the Lindahl Correspondence by a Single-Valued, Feasible, and Continuous Mechanism," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 613-621.
- Andrew Postlewaite & David Wettstein, 1989. "Feasible and Continuous Implementation," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 603-611. Full references (including those not matched with items on IDEAS)
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