The Equilibrium Level of Rigidity in a Hierarchy

A hierarchy is considered in which those agents who perform better advance to higher levels. When agents are heterogeneous and endowed with simple behavioral rules, Harrington (1998a) showed that agents at high levels tend to be rigid, in the sense that their behavior is unresponsive to their environment, relative to agents at low levels. In the current paper, agents are homogeneous but sophisticated as their behavior is required to be consistent with a subgame perfect equilibrium. Agents at high levels are found instead to be flexible relative to agents at low levels. Journal of Economic Literature Classification Numbers: D00, D23, D72. © 1999 Academic Press