Coordination on Networks

We study a coordination game among agents on a network, who choose whether or not to take an action in an uncertain environment that yields value increasing in the actions of neighbors. We develop an algorithm that fully characterizes the equilibrium partitions (coordination sets) and thresholds using the primitives of the model. We show that there is a single coordination set if and only if the network is balanced, i.e., the average degree of each subnetwork is no larger than the average degree of the network. Comparative statics exercises as well as welfare properties are investigated. In particular, we show that contagion is localized within coordination sets. Compared to the perfect information case, both the equilibrium selection, the comparative statics properties as well as the policy implications are different