Seeking Harmony Amidst Diversity: Consensus Building with Network Externalities

26 Pages Posted: 22 Dec 2011 Last revised: 9 May 2013

See all articles by Chia-Hui Chen

Chia-Hui Chen

Institute of Economic Research, Kyoto University

Junichiro Ishida

Osaka University - Institute of Social and Economic Research

Date Written: December 19, 2011

Abstract

A group of individuals, with a potential conflict of interest, face a choice among alternatives. There is a network externality such that the chosen alternative yields value only if sufficiently many individuals get on board. Their preferences for each alternative and the benefit derived from a successfully formed network are known only privately and might vary between the players who determine whether to make their choices early or late. We characterize the equilibrium timing of adoption as well as the efficient timing which maximizes the total expected payoff. We also show that the efficient timing of adoption can be implemented by a simple fee scheme. The analysis gives an insight into why consensus is often hard-won in some societies and suggests a potential role of social norms in improving the efficiency.

Keywords: Network externalities, Consensus building, Decentralized decision making, Social norms

JEL Classification: D82, D85

Suggested Citation

Chen, Chia-Hui and Ishida, Junichiro, Seeking Harmony Amidst Diversity: Consensus Building with Network Externalities (December 19, 2011). ISER Discussion Paper No. 826, Available at SSRN: https://ssrn.com/abstract=1974371 or http://dx.doi.org/10.2139/ssrn.1974371

Chia-Hui Chen

Institute of Economic Research, Kyoto University ( email )

Yoshida-Honmachi, Sakyo-ku
Kyoto, 606-8501
Japan

Junichiro Ishida (Contact Author)

Osaka University - Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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