"Social Reinforcement: Cascades, Entrapment and Tipping"

Geoffrey Heal, Howard Kunreuther

© American Economic Journals: Microeconomics, February 2010
Volume: 2 | Issue: 1 | Pages: 86-99

Publication type: Journal article

Research Archive Topic: Business Economics and Public Policy, Corporate Finance

Abstract

The actions of different agents sometimes reinforce each other. Examples are network effects and the threshold models used by sociologists as well as Harvey Leibensteins's "bandwagon effects." We model such situations as a game with increasing differences, and show that tipping of equilibria, cascading and clubs with entrapment are natural consequences of this mutual reinforcement. If there are several equilibria, one of which Pareto dominates, then the inefficient equilibria can be tipped to the efficient one, a result of interest in the context of coordination problems. We characterise the smallest tipping set. (JEL C72, D80, D 85, Z 13)

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