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The Braess Paradox and Coordination Failure in Directed Networks with Mixed Externalities

Published on Apr 1, 2018in Production and Operations Management2.171
· DOI :10.1111/poms.12827
Vincent Mak9
Estimated H-index: 9
(University of Cambridge),
Darryl A. Seale18
Estimated H-index: 18
(UNLV: University of Nevada, Las Vegas)
+ 4 AuthorsAmnon Rapoport49
Estimated H-index: 49
(UCR: University of California, Riverside)
Sources
Abstract
The Braess Paradox (BP) illustrates an important counterintuitive observation that adding links to a directed transportation network with usage externalities may raise the costs of all users. Research on the BP traditionally focuses on congestible networks. We propose and experimentally test a new and more dramatic version of the BP, where the network exhibits both congestion (negative externalities) and cost†sharing (positive externalities) characteristics. Our design also involves experimental manipulation of choice observability, where players choose routes simultaneously in one condition and sequentially in the other. We report robust behavioral evidence of the BP in both conditions. In nine of 10 sessions in the basic network, subjects coordinated successfully to achieve the welfare†maximizing equilibrium. But once the network was augmented with a new link, coordination failure resulted in a major proportion of subjects switching to a new route, resulting in a 37% average increase in individual travel cost across conditions.
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This study reports the results of an experiment on directed networks with positive externalities induced by cost-sharing. Subjects participated in a network game in which they had to choose between private and public transportations. If a player chose public transportation, then she shared the travel cost equally with other players making the same choice, whereas if she chose private transportation, then her travel cost was fixed. Travel costs on the private route were manipulated across the two...
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