Dynamic coordination with network externalites: procrastination can be efficient

Abstract

I analyze a dynamic coordination model under quasi-hyperbolic discounting. The main result is that present bias can induce a society to coordinate efficiently. When considering a transition from network A to B, higher present bias induces individuals to ask for higher relative quality of B, which is also what the central planner dictates, but for different reasons. A present biased agent overvalues relative quality because, when considering whether to initiate a transition, her momentary loss of network externalities is overvalued by myopic discounting. The planner’s motives are the negative externalities inflicted on agents 'stuck' in A during a transition.