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.
Bibliographical noteFunding Information:
We thank the editor Atsushi Kajii, an anonymous referee, Luis Araujo, Braz Camargo, Itay Goldstein, Caio Machado, Daniel Monte, Guillermo Ordonez, Jakub Steiner and seminar participants at CERGE-EI, Sao Paulo School of Economics—FGV,Wharton, EEA Meeting 2015 (Mannheim), ES World Congress 2015 (Montreal), LAMES 2014 (Sao Paulo) and SBE Meeting 2015 (Florianopolis). Bernardo Guimaraes gratefully acknowledges financial support from CNPq . Ana Elisa Pereira gratefully acknowledges financial support from the Sao Paulo Research Foundation (FAPESP) through grants #2013/24368-7 and #2014/06069-5 . Part of this research was conducted when Pereira was visiting the Wharton School, University of Pennsylvania.
© 2017 Elsevier B.V.
- Attention friction
- Dynamic games
- Timing friction