Who Matters in Coordination Problems?
Jakub Steiner and
József Sákovics
No 2008-27, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)
Abstract:
We consider a common investment project that is vulnerable to a self-ful lling coordination failure and hence is strategically risky. Based on their private information, agents - who have heterogeneous investment incentives - form expectations or 'sentiments' about the project's outcome. We find that the sum of these sentiments is constant across di erent strategy profiles and it is independent of the distribution of incentives. As a result, we can think of sentiment as a scarce resource divided up among the di erent payo types. Applying this nding, we show that agents who bene t little from the project's success have a large impact on the coordination process. The agents with small bene ts invest only if their sentiment towards the project is large per unit investment cost. As the average sentiment is constant, a subsidy decreasing the investment costs of these agents will \free up" a large amount of sentiment, provoking a large impact on the whole economy. Intuitively, these agents, insensitive to the project's outcome and hence to the actions of others, are in uential because they modify their equilibrium behavior only if the others change theirs substantially.
Date: 2008
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Citations: View citations in EconPapers (11)
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http://hdl.handle.net/10943/40
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Related works:
Journal Article: Who Matters in Coordination Problems? (2012) 
Working Paper: Who Matters in Coordination Problems? (2009) 
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Persistent link: https://EconPapers.repec.org/RePEc:edn:sirdps:40
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