informational externalities and emergence of consensus we study a general model of dynamic games with purely informational externalities we prove that eventually all motives for experimentation disappear and provide the exact rate at which experimentation decays we also provide tight conditions under which players eventually reach a consensus these results imply extensions of many known results in the literature of social learning and getting to agreement

economics of leadership and hierarchy this paper explores leadership within hierarchical organizations for each hierarchy i consider a dynamic signaling game in which each player observes only the actions of his direct superiors before choosing his action at the top of the hierarchy are the leaders who learn the state from nature the hierarchy controls the flow of information and the timing of the game and determines the equilibrium output and welfare i show that the welfare optimal hierarchy is the chain because it maximizes the incentive of players to lead by example for their subordinates the chain remains optimal even in the presence of verifiable or unverifiable costly information acquisition by the leaders

cycles in politics wavelet analysis of political time series spectral analysis and arma models have been the most common weapons of choice for the detection of cycles in political time series controversies about cycles however tend to revolve around an issue that both techniques are badly equipped to address the possibility of irregular cycles without fixed periodicity throughout the entire time series this has led to two main consequences on the one hand proponents of cyclical theories have often dismissed established statistical techniques on the other hand proponents of established techniques have dismissed the possibility of cycles without fixed periodicity wavelets allow the detection of transient and coexisting cycles and structural breaks in periodicity in this article we present the tools of wavelet analysis and apply them to the study of two lingering puzzles in the political science literature the existence of cycles in election returns in the united states and in the severity of major power wars

the birth of a new market the authors consider a sequential decision model in which entrepreneurs decide on whether to enter a potential new market individual entrepreneurs have private expectations about the new market s viability over time they learn about its viability from their own experience as well as that of earlier entrepreneurs the distribution of the private expectations is said to be heterogeneous if external prior beliefs about the market s viability exist the authors show that heterogeneity of expectations cuts both ways while it facilitates the birth of viable markets it also generates via the existence of extremal beliefs excessive entry in nonviable markets copyright 1994 by royal economic society

cycles in american national electoral politics 1854 2006 statistical evidence and an explanatory model are there cycles in american politics in particular does the proportion of the democratic republican vote share for president and or seat share in congress rise and fall over extended periods of time if so are the cycles regular and what are the cycling periods moreover if there are regular cycles can we construct an integrated model such as a negative feedback loop that identifies political forces that could generate the observed patterns first we use spectral analysis to test for the presence and length of cycles and show that regular cycles do in fact exist with periods that conform to those predicted by the schlesingers for swings between liberalism and conservatism but with durations much shorter than those most commonly claimed by burnham and others in characterizing american political realignments second we offer a voter party interaction model that depends on the tensions between parties policy and office motivations and between voters tendency to sustain incumbents while reacting against extreme policies we find a plausible fit between the regular cycling that this model projects and the time series of two party politics in america over the past century and a half

self organising behaviour in the presence of negative externalities a conceptual model of commuter choice abstract we use a model with local interaction a one dimensional cellular automaton to study how commuters choose among alternative roads commuters have information about their neighbours most recent experience local interaction and they remember their own experiences memory we illustrate how a simple self organizing system based on local information and locally rational agents can in some cases outperform the nash equilibrium while the social optimum is unenforceable without a central planner due to the variations in individual travel times i e the social optimum is not individually rational variations across commuters in the steady state of our self organising system are at least equivalent to and mostly significantly larger than those required for the social equilibrium increasing the neighbourhood size illustrates that more information without co ordination leads to worse overall performance

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

information flows and social externalities in a tanzanian banana growing village this article analyses the role of social networks as facilitators of information flows and banana output increase based on a village census full information is available on the socio economic characteristics and banana production of farmers kinship group members neighbours and informal insurance group members the census data enable us to use individual specific reference groups and include exogenous group controls to tackle standard difficulties related to identification and omitted variables bias when analysing social effects for the survey village of nyakatoke in tanzania the results suggest that information flows exist within all types of groups analysed but output externalities are limited to kinship groups using networks may offer scope for effective information flows on agricultural techniques but our evidence suggests that not just any local network will have a social externality impact requiring a clear understanding of local social networks for maximum impact

adoption of agricultural innovations in developing countries a survey this paper reviews various studies which have provided a description and possible explanation to patterns of innovation adoption in the agricultural sector the survey points out that the tendency of many studies to consider innovation adoption in dichotomous terms adoption nonadoption may not be appropriate in many cases where the actual decisions are defined over a more continuous range more attention needs to be given to the socio cultural and institutional environment in area studies so that their interrelation with economic factors affecting adoption can be inferred the presence of several interrelated innovations is another aspect that needs to be considered more carefully in future research since a number of simultaneous decisions may be involved furthermore the possibility of regular sequential patterns in adopting components of a new technological package should be specifically addressed in future studies finally the impact of differential adoption rates on land holding distribution merits attention in future research

bargaining in a network of buyers and sellers abstract we analyze bargaining between buyers and sellers who are connected by an exogenously given network players can make repeated alternating public offers that may be accepted by any of the responders linked to each specific proposer our purpose is to find the conditions of the network which drive the price distribution in equilibrium this paper uses graph theory tools to provide necessary and sufficient conditions regarding the architecture of networks for the subgame perfect equilibrium of the bargaining game to coincide with the walrasian outcome

efficient equilibrium selection in evolutionary games with random matching abstract this paper investigates the sensitivity of recent evolutionary models of learning to the specification of the matching mechanism we study a literally random matching mechanism combined with a process of strategy adjustment based on the realized average performance of each strategy in the key class of symmetric 2 2 coordination games the pareto efficient equilibrium per se is selected rather than the risk dominant equilibrium as the probability of experimentation or mutation goes to zero furthermore convergence to the equilibrium is relatively fast we extend these results for example to games of common interest journal of economic literature classification numbers c72 c73

an analysis of household mobility and tenure choice an empirical study of korea abstract this paper develops a model of households joint mobility tenure decisions which improves upon the sole existing model in two important ways first the probabilistic structure is appropriately framed to capture the simultaneity of the mobility and tenure decisions second the model is based more directly on utility maximization theory an additionally distinguishing characteristic of the model is the fact that all independent variables in the estimation are expressed in flow terms this is done in an effort to more truly reflect their importance in the decision making of the household the model is estimated using microlevel data from korea the coefficients and derived elasticities are consistent with expectations and korean households are found to behave in a manner similar to that in the united states this suggests that the basic motivations underlying households mobility tenure decisions are invariant across countries

rules of thumb for social learning this paper studies agents who consider the experiences of their neighbors in deciding which of two technologies to use we analyze two learning environments one in which the same technology is optimal for all players and another in which each technology is better for some of them in both environments players use exogenously specified rules of thumb that ignore historical data but may incorporate a tendency to use the more popular technology in some cases these naive rules can lead to fairly efficient decisions in the long run but adjustment can be slow when a superior technology is first introduced

learning from neighbours when payoffs from different actions are unknown agents use their own past experience as well as the experience of their neighbours to guide their decision making in this paper we develop a general framework to study the relationship between the structure of these neighbourhoods and the process of social learning we show that in a connected society local learning ensures that all agents obtain the same payoffs in the long run thus if actions have different payoffs then all agents choose the same action and social conformism obtains we develop conditions on the distribution of prior beliefs the structure of neighbourhoods and the informativeness of actions under which this action is optimal in particular we identify a property of neighbourhood structures local independencewhich greatly facilitates social learning simulations of the model generate spatial and temporal patterns of adoption that are consistent with empirical work

word of mouth communication and social learning this paper studies the way that word of mouth communication aggregates the information of individual agents we find that the structure of the communication process determines whether all agents end up making identical choices with less communication making this conformity more likely despite the players naive decision rules and the stochastic decision environment word of mouth communication may lead all players to adopt the action that is on average superior these socially efficient outcomes tend to occur when each agent samples only a few others i introduction economic agents must often make decisions without knowing the costs and benefits of the possible choices given the frequency with which such situations arise it is understandable that agents often choose not to perform studies or experiments but instead rely on whatever information they have obtained via casual word of mouth communication reliance on this sort of easily obtained information appears to be common in circumstances ranging from consumers choosing restaurants or auto mechanics to business managers evaluating alternative organizational structures this paper studies two related environments in arguing that individuals reliance on word of mouth communication has interesting implications for their aggregate behavior first motivated by the diffusion of new technologies we consider a choice between two competing products with unequal qualities or payoffs and show that the structure of communication is important in determining whether the population as a whole is likely to learn to use the superior product second we consider a choice between two products or practices that are equally good and ask whether consumers are likely to herd onto a single choice or whether diversity will obtain even in the long run we explore the implications of word of mouth communication in a simple nonstrategic environment there is a large population of identical players each of whom repeatedly chooses between two possible actions each player s payoff is determined by his own

a model of the political economy of the united states we develop and test a model of joint determination of economic growth and national election results in the united states the formal model which combines developments in the rational choice analysis of the behavior of economic agents and voters leads to a system of equations in which the dependent variables are the growth rate and the vote shares in presidential and congressional elections our estimates support the theoretical claims that growth responds to unanticipated policy shifts and that voters use both on year and midterm elections to balance the two parties on the other hand we find no support for rational retrospective voting we do reconfirm in a fully simultaneous framework the naive retrospective voting literature s finding that the economy has a strong effect on presidential voting we find congressional elections unaffected by the economy except as transmitted by presidential coattails

cooperation in community interaction without information flows we study cooperative behaviour in communities where the flow of information regarding past conduct is limited or missing players are initially randomly matched with no knowledge of each other s past actions they endogenously decide whether or not to continue the repeated relationship there is incomplete information regarding player types a subset of the population is myopic while the remainder have discount factors that permit cooperation in principle we define social equilibrium in such communities such equilibria are characterized by an initial testing phase followed by cooperation if the test is successful it is precisely the presence of myopic types that permit cooperation by raising barriers to entry into new relationships we examine the implications of increased patience which takes two forms an increase in the number of non myopic types and an increase in the discount factor of non myopic types these two notions turn out to have strikingly different implications for the degree of cooperation that can be sustained

from exogenous to endogenous economic networks internet applications economic agents behaviour is affected by their position in a network either exogenous or endogenous in which they interact with a sub set of neighbours only the network s links which may be generated by vertical and or horizontal relations or by more complex morphologies may explain the transition between dynamic equilibria and the instability of economic aggregates moreover networks shape strategic interaction among agents by determining their strategies the problem of access and interconnection particularly relevant in the internet is perhaps the best example a two way feedback between strategies and network structures arises instead when links are endogenous those features are clearly shown in the mechanism underlying the formation of peering links an dr d networks

tenure choice and condominium conversion abstract in this paper we examine the tenure choice decisions of households involved in the condominium conversion process we apply a model of tenure choice selection to two separate samples preconversion residents and postconversion residents we find that the primary factors influencing homeownership in general income and relative prices are also strong influences in determining condominium ownership however the tenure choice decisions of preconversion residents who are confronted with a forced choice are more heavily influenced by income and expected mobility post conversion tenure choice varies more with demographic factors and is more price elastic in nature

cycles in public opinion and the dynamics of stable party systems we study a dynamic model of elections where many parties may enter or exit political competition at each election a new political leadership arrives for each party the leadership cannot choose the party s platform ideological identities are fixed but must decide whether or not to contest the election contesting elections is costly and this cost is higher if the party has recently been inactive the distribution of voters ideal policies or public opinion changes over time via a markov process with a state independent persistence parameter we characterise stable party systems where the set of contestants is invariant to the recent most observed opinion we show that stable party systems exist only when public opinion is sufficiently volatile while highly persistent moods lead to instability and change in the party system whenever public opinion changes

match choice and ghettoization in evolutionary games abstract i study how having a choice about who to play affects the conventions that arise in a population playing a 2 2 common interest game match choice allows agents playing fragile but efficient strategies to isolate themselves raising their returns but making it harder for outsiders to duplicate their success when agents are myopic the second effect dominates long run play can shift toward either the risk dominant equilibrium with common interests in matching or toward the inefficient equilibrium with opposing interests in matching in contrast when agents are patient supra nash payoffs can be sustained

bayesian learning in social networks we study the perfect bayesian equilibrium of a sequential learning model over a general social network each individual receives a signal about the underlying state of the world observes the past actions of a stochastically generated neighbourhood of individuals and chooses one of two possible actions the stochastic process generating the neighbourhoods defines the network topology we characterize pure strategy equilibria for arbitrary stochastic and deterministic social networks and characterize the conditions under which there will be asymptotic learning convergence in probability to the right action as the social network becomes large we show that when private beliefs are unbounded meaning that the implied likelihood ratios are unbounded there will be asymptotic learning as long as there is some minimal amount of expansion in observations we also characterize conditions under which there will be asymptotic learning when private beliefs are bounded

an evolutionary approach to pre play communication we add a round of pre play communication to a finite two player game played by a population of players pre play communication is cheap talk in the sense that it does not directly enter the payoffs the paper characterizes the set of strategies that are stable with respect to a stochastic dynamic adaptive process periodically players have an opportunity to change their strategy with a strategy that is more successful against the current population any strategy that weakly improves upon the current poorest performer in the population enters with positive probability when there is no conflict of interest between the players only the efficient outcome is stable with respect to these dynamics for general games the set of stable payoffs is typically large every efficient payoff recurs infinitely often

anti coordination and social interactions abstract this paper studies the first model of social interactions with anti coordination agents have fixed partners with whom they play a common bilateral game of anti coordination like the chicken game partnerships are represented as links of a network the paper asks how do social interactions interplay with the incentives to anti coordinate how does the social network affect individual choices in equilibrium the analysis shows that network effects are much stronger than when partners play a coordination game the network notably affects how agents respond when a strategy becomes more advantageous in the standard benchmark of complete interactions more agents play the strategy this result does not generally hold when the network is incomplete on bipartite networks agents choices are unaffected while on core periphery networks less agents may play the strategy

evolutionary dynamics with aggregate shocks abstract we study the evolution of the continuous time replicator dynamics when payoffs are subject to aggregate shocks that take the form of a wiener process in the absence of mutation the system need not have an ergodic distribution with mutation the system does have an ergodic distribution in the limit as the mutation rate and the variance of the shocks converge to zero this distribution concentrates on the risk dominant equilibrium this result is not however robust to changes in the underlying deterministic dynamics

partisan cycles in congressional elections and the macroeconomy in the postwar united states the president s party has always done worse in the midterm congressional elections than in the previous congressional election republican administrations exhibit below average and democratic administrations above average economic growth in the first half of each term whereas in the latter halves the two see equal growth our rational expectations model is consistent with these two regularities in presidential elections voters choose between two polarized candidates they then use midterm elections to counterbalance the president s policies by strengthening the opposition in congress since presidents of different parties are associated with different policies our model predicts a spurious correlation between the state of the economy and elections our predictions contrast with those of retrospective voting models in which voters reward the incumbent if the economy is doing well before the election our model performs empirically at least as well as and often better than alternative models

does inflation affect real behavior the case of housing an important tradition in economics is to assume that demand depends upon relative prices and is homogenous of degree zero for the most part this has been interpreted as meaning inflation changes in the price level leaves demand unchanged recent work by a number of economists has challenged this position for the case of housing demand two arguments have been made that inflation acting in concert with existing institutions alters the quantity of housing demanded and the decision to rent or own a house the first argument states that inflation and the standard fixed payment mortgage combine to reduce the size of the mortgage loan a household can obtain for the purpose of buying a home this works to reduce the quantity of owner occupied housing demanded given the importance of mortgage finance to the demand for owner occupied housing the second argument focuses on the inflation adjusted after tax cost of owner occupied housing it simply states that an increase in the rate of anticipated inflation of the general price level reduces the after tax cost of housing thus increasing the demand for housing and the demand for homeownership there has been little empirical testing of these two arguments the purpose of this paper is to formulate and estimate a model which will give an indication of the quantitative significance of the two arguments a housing demand equation and a tenure choice equation own versus rent are estimated using a sample of about 6000 households from the 1975 annual housing survey 10 the estimates suggest that inflation dampens housing demand and homeownership opportunity for most households even though the inflation adjusted after tax cost of owner occupied housing declines as inflation heats up the paper consists of six sections including the introduction section two examines the ways inflation affects housing choices in more detail the third section contains the specification of the econometric model that forms the basis of the study section four is a discussion of econometric problems and the data used the results of the estimates are discussed in the fifth section the paper concludes with a presentation of the major conclusions and policy implications of the study

leadership and the voluntary provision of public goods field evidence from bolivia abstract we conduct a controlled field experiment in 52 communities in rural bolivia to investigate the effect that local authorities have on voluntary public good provision in our study community members pool resources to provide environmental education material for local schools we find that voluntary contributions increase when democratically elected local authorities lead by example the results are driven by two factors 1 authorities like other individuals give more when they are called upon to lead than when they give in private and 2 high leader contributions increase the likelihood that others follow both effects are stronger when authorities as compared to randomly selected community members lead by example we explore two underlying sources of leadership influence first we provide evidence that the effect of a leader s contribution is not limited to signaling the value of the public good second we examine how leader characteristics affect the likelihood that others follow specifically our study shows that authority influence is driven by a combination of formal leadership status observable characteristics and the amount that authorities contribute when they give publicly before others

some stochastic processes of interdependent demand and technological diffusion of an innovation exhibiting externalities among adopters one frequently hears the opinion that as twentieth century society becomes more complex technological change assumes more significance and occurs at a more r apid pace investment in researclh and development results in a myriad of potential innovations yet as the frontiers of technology are plshed outward uncertainity about the usefulniess of innovations becomes an increasingly important factor in the decision whether or not to adopt the new innovation furthermore the decisions of individual economic agents tend to become increasingly interrelated many recent innovations are such that whether others adopt the device influences the benefits of adoption which accrue to a given consumer or firm such externalities may be positive for example consider a nation s decision to use the metric system the wearing of a style by a fashion leader a merchant s decision to accept a certain credit card or the purchase of a coinmunication device by someone with whom one desires to communicate or negative for instance imitation in the production of a faddish consumption item for which the potential market is limited or the pulrchase of a telephone by an obscene caller our goal is to analyze techn ological difflsioll with interdependencies when uncertainty and informational considerationis are an inherent part of the theoretical model the uncertainty may be of two types a technological ulncertainty the usefulness or quality of the innovation is at least partially unlknown and b adoption uncertainity incomplete or inaccurate knowledge about who is usinlg the innovation in our stochastic model adoptioni is reversible the decision to use the innovation is not permanent but rather agents may change their minds agents are not able to learn about the characteristics quality profitability usefulness etc of the innovation this assumption limits the applicability of

communication and coordination in social networks i model people in a coordination game who use a communication network to tell each other their willingness to participate the minimal sufficient networks for coordination can be interpreted as placing people into a hierarchy of social roles or stages initial adopters then followers and so on down to late adopters a communication network helps coordination in exactly two ways by informing each stage about earlier stages and by creating common knowledge within each stage we then consider two examples first we show that low dimensional networks can be better for coordination even though they have far fewer links than high dimensional networks second we show that wide dispersion of insurgents people predisposed toward participation can be good for coordination but too much dispersion can be bad although collective action depends on both social structure and individual incentives these integral aspects have been formalized separately in the fields of social network theory and game theory by considering them together this paper engages the classic question of which structures are conducive to coordination and shows that structure and strategy are related in a mutually interesting way here we consider a coordination game in which each person wants to participate only if others participate social structure is thought of as a communication network by which people tell each other their willingness to participate each person knows whether her neighbours in the network are willing but does not know about anyone else our model is thus a game of incomplete information in which each person given his local knowledge decides whether to participate the main result is a characterization of the minimal sufficient networks for coordination in terms of a hierarchy of social roles or stages initial adopters then followers and so on down to late adopters for example a communication network helps coordination in exactly two ways by informing each stage about earlier stages and by creating common knowledge within each stage we also consider two simple examples first we show that low dimension or strong link networks can be better for coordination even though they have far fewer links than high dimension or weak link networks second we show that wide dispersion of insurgents people predisposed toward participation can be good for coordination but too much dispersion can be bad this paper is built on the assumption that the most basic and common mechanism for coordination is the i ll go if you go mechanism individuals first communicate with each other about their preferences and then each individual chooses whether to participate or not hence a person s participation depends on what he knows about his neighbours it does not depend solely on their participation itself either through learning adaptation or social influence the physical analogies of contagion or diffusion are not

credibility and strategic learning in networks we analyze a model of diffusion in a fixed finite connected network there is an interested party that knows the quality of the product being propagated and chooses an implant in the network to influence other agents to buy agents are either innovators who adopt immediately or rational rational consumers buy if buying instead of waiting maximizes expected utility we consider the conditions on the network under which optimal diffusion of the good product with probability 1 is a perfect bayes equilibrium

dynamic responsiveness in the u s senate id evelop a theory of dynamic responsiveness that suggests that parties that win elections choose candidates who are more extreme and parties that lose elections choose candidates who are more moderate moreover the size of past victories matters close elections yield little change but landslides yield large rc hanges in the candidates offered by both parties i test this theory by analyzing the relationship between republican vote share in u s senate elections and the ideology of candidates offered in the subsequent election the results show that republican democratic victories in past elections yield candidates wh oa re more less conservative in subsequent elections and the effect is proportional to the margin of victory this suggests that parties or candidates pay attention to past election returns one major implication is that parties may remain polarized in spite of their responsiveness to the median voter

decentralization and the coordination problem abstract this paper addresses the relationship between the degree of decentralization in a population and the probability of coordinating on an efficient outcome rather than the risk dominant outcome in a coordination game the model here extends the literature on evolutionary games by supposing that players interact in groups but that occasionally they may change groups the main innovation is the group changing assumption which allows players to vote with their feet in contrast to most of the recent literature e g kandori et al 1993 in which the risk dominant equilibrium is selected in the long run the model here predicts convergence to the efficient equilibrium if interaction is decentralized enough furthermore it is shown how the model can be applied to the problem of product standardization

a theory of learning with heterogeneous agents the authors study learning in organizations comprised of short lived agents with heterogeneous beliefs it is shown that the sequence of actions converges in probability to the set of ex post optimal actions under some identifiability conditions beliefs also converge in probability to point mass on the truth moreover while actions and posterior beliefs converge in probability they can simultaneously almost surely fail to converge the authors simulations of n kiefer s 1989 monopoly learning model suggest that if the firm is operated by a sequence of short lived managers with heterogeneous beliefs then complete learning of the demand curve obtains copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

learning from trades i study stationary cut off strategy equilibria of a dynamic market model where buyers sample sellers sequentially from an unknown distribution buyers learn about the distribution from the sampled sellers and a trade signal the trade signal reveals whether a randomly chosen seller traded yesterday observing a trade as opposed to no trade is good news about the distribution buyers who observe a trade use a higher cut off than buyers who observe no trade despite buyers learning from sampled sellers that puts a countervailing pressure on the cut offs the trade signal may reduce market efficiency while an appropriate exogenous signal increases efficiency