On payoff heterogeneity in games with strategic complementarities
Payoff heterogeneity weakens positive feedback in binary choice models in two ways. First, heterogeneity drives individuals to corners where they are unaffected by strategic complementarities. Second, aggregate behaviour is smoother than individual behaviour when individuals are heterogeneous. However, this smoothing does not necessarily eliminate positive feedback or guarantee a unique equilibrium. In games with an unbounded, continuous choice space, heterogeneity may either weaken or strengthen positive feedback, depending on a simple convexity/concavity condition. We conclude that positive feedback phenomena derived in representative agent models will often be robust to heterogeneity.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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 587-597, June.
- Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
- 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.
- Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
- Berthold Herrendorf & Akos Valentinyi & Robert Waldmann, 2000. "Ruling Out Multiplicity and Indeterminacy: The Role of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 67(2), pages 295-307.
- 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.
- Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 869-905.
- Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Caballero, Ricardo J, 1992. "A Fallacy of Composition," American Economic Review, American Economic Association, vol. 82(5), pages 1279-1292, December.