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Changing places—the role of heterogeneity and externalities in cumulative processes


Schmutzler, Armin (1998). Changing places—the role of heterogeneity and externalities in cumulative processes. International Journal of Industrial Organization, 16(4):445-461.

Abstract

We consider a simple class of dynamic games. A continuum of players chooses between two actions (“locations”) in each period; per-period payoffs depend positively on the number of players choosing the same action. The resulting dynamics are investigated. If one location receives a favorable shock, the effects of the strength of externalities and the heterogeneity of the population on the extent of adjustment may be non-monotone and discontinuous, due to two competing effects. With stronger externalities (lower heterogeneity), less players move initially, but more players follow once the process has gained momentum.

Abstract

We consider a simple class of dynamic games. A continuum of players chooses between two actions (“locations”) in each period; per-period payoffs depend positively on the number of players choosing the same action. The resulting dynamics are investigated. If one location receives a favorable shock, the effects of the strength of externalities and the heterogeneity of the population on the extent of adjustment may be non-monotone and discontinuous, due to two competing effects. With stronger externalities (lower heterogeneity), less players move initially, but more players follow once the process has gained momentum.

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4 citations in Web of Science®
4 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:23 December 1998
Deposited On:11 Feb 2008 12:21
Last Modified:05 Apr 2016 12:17
Publisher:Elsevier
ISSN:0167-7187
Publisher DOI:https://doi.org/10.1016/S0167-7187(96)01059-4

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