Dynamic coordination among heterogeneous agents |
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| Institution: | 1. Sao Paulo School of Economics - FGV, Rua Itapeva 474, 01332-000, Sao Paulo - SP, Brazil;2. School of Business and Economics, Universidad de los Andes, Chile;1. Department of Econometrics, VU University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, Netherlands;2. Tinbergen Institute, Netherlands;3. Department of Economics, University of Washington, Box 353330, Seattle, WA 98195-3330, USA;1. Department of Economics, Yale University, New Haven, CT 06520, USA;2. Department of Economics, Princeton University, Princeton, NJ 08544, USA |
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| Abstract: | We study a dynamic model of coordination with timing frictions and payoff heterogeneity. There is a unique equilibrium, characterized by thresholds that determine the choices of each type of agent. We characterize equilibrium for the limiting cases of vanishing timing frictions and vanishing shocks to fundamentals. A lot of conformity emerges: despite payoff heterogeneity, agents’ equilibrium thresholds partially coincide as long as a set of beliefs that would make this coincidence possible exists. However, the equilibrium thresholds never fully coincide. In case of vanishing frictions, the economy behaves almost as if all agents were equal to an average type. Conformity is not inefficient. In the efficient solution, agents follow others even more often. |
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| Keywords: | Conformity Timing friction Attention friction Dynamic games |
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