Assortative Interactions and Endogenous Stratification

Susan Lee

Working Papers from Santa Fe Institute

Abstract: An evolutionary model is used to examine how the presence of strategic risk and exclusion in interactions on the basis of economic class differences (assortive matching) can explain persistent inequality. A large population of agents is matched asynchronously according to a wealth-weighted probability distribution to play a 2 x 2 coordination game with a Pareto dominant equilibrium and a risk dominant equilibrium. Best response dynamics eventually select the inferior equilibrium, but with sufficiently strong exclusion inequality arises and persists for arbitrarily long finite periods. In particular, exclusion increases the probability that an upper class will arise. In an environment with strategic risk, exclusion helps preserve confidence in the good equilibrium strategy but also perpetuates inequality.

Keywords: Endogenous interactions; stratification; evolution of conventions (search for similar items in EconPapers)
Date: 1999-08
New Economics Papers: this item is included in nep-cmp and nep-evo
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Persistent link: https://EconPapers.repec.org/RePEc:wop:safiwp:99-08-056

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