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Coordination in Social and Political Environments

Paper Session

Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, L505
Hosted By: Econometric Society
  • Chair: Joel Sobel, University of California-San Diego

Interventions when Social Norms are Endogenous: A Critique

Rohan Dutta
McGill University
David Levine
European University Institute and Washington University-St. Louis
Salvatore Modica
University of Palermo


Lucas’s critique of adaptive expectations argues that treating expectations as exogenous when
they are endogenous can lead to important policy mistakes. More broadly the critique is of treating
the endogenous as exogenous. Here we make the same argument with respect to social norms.
Typically social norms are treated as exogenous in the face of substantial evidence that they are
endogenous. We present a simple stylized model of endogenous social norms and show how ignoring
endogeneity can lead to erroneous conclusions. We first examine how misunderstanding of the
optimal nature of social norms may lead to misinterpretation of evidence and misguided policy
prescriptions. This point we illustrate with two examples. In the first we show how populist
working class resentment of the lax supervision of professional classes may be wrongly attributed
to political power. In the second we show how the impact of double-blind laboratory treatments
is properly understood only in the context of optimal social norms. Our second setting is one
of social norms that may change in response to changed circumstances. In our first illustrative
application we show that public good production can decrease when it is subsidized - and that
this is nevertheless evidence of an increase in welfare. In the second we show how changes in the
minimum wage can have different consequences depending on the scope of coverage. Finally, we
turn to the issue of internalization of social norms. This is widely understood to be important - but
like other aspects of social norms internalization is not fixed or magical but endogenous. Here we
show how the naive idea that laboratory results carry over directly to the field can lead to mistaken
conclusions while at the same time showing how appropriate use of laboratory results can serve as
important confirmation for hypotheses about the field.

Investment in the Shadow of Conflict: General Equilibrium Foundations of Regime Change

Mehdi Shadmehr
Princeton University and University of Calgary


In conflict-prone societies, the fear of expropriation that accompanies a regime change reduces foreign investment and increases capital flight. These reductions in capital investments, in turn harm the economy, amplifying the likelihood of regime change. This paper studies the implications of these feedback channels on the interactions between globalization, capital control, state repression, and regime change. I develop a tractable framework that integrates a general equilibrium model of the economy with production and markets with a model of collective action with coordination and information frictions. Market forces coupled with coordination considerations and information frictions generate conflicting forces for both strategic complements and substitutes. When noise vanishes, a unique equilibrium obtains that identifies when regime change happens. Three results emerge. I show that (1) Globalization can amplify the likelihood of regime change, and strengthen the elite's demand for a coercive state that limits economic and political decisions; (2) When foreign returns are low, capitalists support capital control to reduce political risk; and (3) Economic coercion (capital control) and political coercion (repression) can be complements (Nazi Germany) or substitutes (Latin American military regimes).

Dynamic Escalation in Multiplayer Rivalries

Charles Z. Zheng
University of Western Ontario
Fredrik Odegaard
University of Western Ontario


Many war-of-attrition-like races, such as online crowdsourcing challenges, online penny auctions, lobbying, R&D races and political contests among and within parties, involve more than two contenders. An important strategic decision in these settings is the timing of escalation. Anticipating the possible event in which another rival is to compete with the current frontrunner, a trailing contender may delay its own escalation effort, and thus avoid the instantaneous sunk cost, without necessarily conceding defeat. Such a free-rider effect, in the n-player dynamic war of attrition considered here, is shown to outweigh the opposite, competition effect intensified by having more rivals. Generalizing the dollar auction framework, we construct subgame perfect equilibria where more than two players participate in escalation and, at critical junctures of the process, free-ride one another's escalation efforts. These equilibria generate larger total surplus for all rivals than the equilibrium where only two players participate in escalation.
Heski Bar-Isaac
University of Toronto
David Myatt
London Business School
Jonathan Weinstein
Washington University
JEL Classifications
  • D7 - Analysis of Collective Decision-Making
  • C7 - Game Theory and Bargaining Theory