Endogenous Heterogeneity in Strategic Models: Symmetry-breaking via Strategic Substitutes and Nonconcavities



1 Introduction

One of the most pervasive presumptions in modern economic analysis is the
symmetric nature of interacting agents. While often intended solely as a sim-
plifying assumption on a priori grounds, this presumption has also permeated
economic thinking for a variety of other reasons. When considering noncooper-
ative games, analysts often restrict attention to symmetric equilibrium points
even when other asymmetric outcomes exist and may reflect more rational-
izable or more pertinent behavior. In mechanism design or policy games, the
social planner typically assumes identical treatment of identical agents, although
global optimality might dictate otherwise. The design of various forms of joint
ventures is also subject to a similar observation.

In most cases, the only justification beyond simplicity is what Schelling
(1960) convincingly termed the focal nature of symmetric equilibrium outcomes.
Indeed, it is widely recognized that inter-agent heterogeneity is often a critical
dimension of several economic and social phenomena. From a positive perspec-
tive, heterogeneity is simply a necessary postulate to account for the simple fact
that in the real world, one seldom observes identical agents, be it individuals,
firms, industries or countries. In a similar vein, even from a normative stand-
point, differences across interacting agents often constitute a necessary condition
for many important economic activities such as trade or risk-sharing.

Understanding the origins and/or evolution of diversity across economic
agents or disparities in economic performance across regions is increasingly per-
ceived as a central goal of economic and social research in a number of different
areas (see e.g. Geroski et al. (2003) and Ghemawat (1986) ). Macroeconomists
attempt to explain the causes of booms and recessions. Development economists
wish to understand the forces behind poor and strong economic performances.
Labor economists attempt to get a handle on discriminatory treatment of some
groups of workers. Business strategists and industrial economists devote a lot
of attention to the sources and sustainability of inter-firm heterogeneity within
and across industries. Overall, much effort has been expanded with a view to



More intriguing information

1. Mergers under endogenous minimum quality standard: a note
2. CGE modelling of the resources boom in Indonesia and Australia using TERM
3. RETAIL SALES: DO THEY MEAN REDUCED EXPENDITURES? GERMAN GROCERY EVIDENCE
4. Tariff Escalation and Invasive Species Risk
5. The name is absent
6. Peer Reviewed, Open Access, Free
7. Business Networks and Performance: A Spatial Approach
8. NATIONAL PERSPECTIVE
9. Tissue Tracking Imaging for Identifying the Origin of Idiopathic Ventricular Arrhythmias: A New Role of Cardiac Ultrasound in Electrophysiology
10. The English Examining Boards: Their route from independence to government outsourcing agencies
11. Types of Tax Concessions for Promoting Investment in Free Economic and Trade Areas
12. The name is absent
13. Before and After the Hartz Reforms: The Performance of Active Labour Market Policy in Germany
14. Ex post analysis of the regional impacts of major infrastructure: the Channel Tunnel 10 years on.
15. A parametric approach to the estimation of cointegration vectors in panel data
16. A methodological approach in order to support decision-makers when defining Mobility and Transportation Politics
17. Spatial Aggregation and Weather Risk Management
18. fMRI Investigation of Cortical and Subcortical Networks in the Learning of Abstract and Effector-Specific Representations of Motor Sequences
19. The name is absent
20. Estimated Open Economy New Keynesian Phillips Curves for the G7