Working Paper: CEPR ID: DP12834
Authors: Sidartha Gordon; Emeric Henry; Pauli Murto
Abstract: We introduce a neighborhood structure in waiting games where the players decide when to``stop" (exit a market, adopt a technology). The payoff of stopping increases each time a neighbor stops. We show that the dynamic evolution of the network starkly depends on initial parameters and can take the form of either a shrinking network, where players at the edges stop first, or a fragmenting network where interior players stop first making the network split up in smaller ones over time. We find that, in addition to the coordination inefficiency standard in waiting games, the neighbourhood structure gives rise to two other inefficiencies, the first linked to the order of exit and the second to the final distribution of remaining nodes. We consider subsidy programs aimed at correcting these inefficiencies.
Keywords: waiting games; networks; inefficiencies
JEL Codes: D85; C73; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Number of neighbors that have already stopped (C69) | Payoff for stopping (G35) |
| Payoff for stopping (G35) | Stopping behavior of an individual player (C92) |
| Structure of the network (D85) | Order of exits (Y60) |
| Sequence in which players stop (C69) | Order inefficiency (D61) |
| Distribution of remaining nodes at the end of the game (C73) | Spatial inefficiency (D61) |
| Initial parameters (Y20) | Outcome of the waiting game (C72) |