A dynamic analysis of Schelling’s binary corruption model

A competitive equilibrium approach

J.P. Caulkins, G. Feichtinger, D. Grass, R.F. Hartl, P.M. Kort, A.J. Novak, A. Seidl, F. Wirl

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Schelling (in Micromotives and Macrobehavior, Norton, New York, 1978) suggested a simple binary choice model to explain the variation of corruption levels across societies. His basic idea was that the expected profitability of engaging in corruption depends on its prevalence. The key result of the so-called Schelling diagram is the existence of multiple equilibria and a tipping point. The present paper puts Schelling’s essentially static approach into an intertemporal setting. We show how the existence of an unstable interior steady state leads to thresholds such that history alone or history in addition to expectations (or coordination) is necessary to determine the long-run outcome. In contrast to the related literature, which classifies these two cases according to whether the unstable equilibrium is a node or a focus, the actual differentiation is more subtle because even a node can lead to an overlap of solution paths such that the initial conditions alone are insufficient to uniquely determine the competitive equilibrium. Another insight is that a (transiently) cycling competitive equilibrium can dominate the direct and monotonic route to a steady state, even if the direct route is feasible.
Original languageEnglish
Pages (from-to)608-625
JournalJournal of Optimization Theory and Applications
Volume161
Issue number2
DOIs
Publication statusPublished - May 2014

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Competitive Equilibrium
Dynamic Analysis
Dynamic analysis
Unstable
History
Binary
Binary Choice
Multiple Equilibria
Choice Models
Profitability
Cycling
Vertex of a graph
Long-run
Monotonic
Overlap
Interior
Initial conditions
Diagram
Classify
Path

Keywords

  • Corruption
  • Schelling diagram
  • intertemporal competitive equilibria
  • thresholds
  • history versus expectations

Cite this

Caulkins, J.P. ; Feichtinger, G. ; Grass, D. ; Hartl, R.F. ; Kort, P.M. ; Novak, A.J. ; Seidl, A. ; Wirl, F. / A dynamic analysis of Schelling’s binary corruption model : A competitive equilibrium approach. In: Journal of Optimization Theory and Applications. 2014 ; Vol. 161, No. 2. pp. 608-625.
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A dynamic analysis of Schelling’s binary corruption model : A competitive equilibrium approach. / Caulkins, J.P.; Feichtinger, G.; Grass, D.; Hartl, R.F.; Kort, P.M.; Novak, A.J.; Seidl, A.; Wirl, F.

In: Journal of Optimization Theory and Applications, Vol. 161, No. 2, 05.2014, p. 608-625.

Research output: Contribution to journalArticleScientificpeer-review

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