On payoff heterogeneity in games with strategic complementarities

Antonio Ciccone and James Costain

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: 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.

Keywords: Heterogeneity; multiplicity; discrete choice; strategic complementarity; positive feedback (search for similar items in EconPapers)
JEL-codes: C72 E00 (search for similar items in EconPapers)
Date: 2001-04, Revised 2002-02
New Economics Papers: this item is included in nep-dcm, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: On payoff heterogeneity in games with strategic complementarities (2004)
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