Introduction to Modern Economic Growth give a flavor of these models, consider the following simple game of investment: everybody else → high investment individual ↓ high investment yH , yH low investment yL, yL − ε low investment y L − ε, y L yL, yL The top row indicates whether all individuals in the society choose high or low investment (focusing on a symmetric equilibrium) The first column corresponds to high investment by all agents, while the second corresponds to low investment The top row, on the other hand, corresponds to high investment by the individual in question, and the bottom row is for low investment In each cell, the first number refers to the income of the individual in question, while the second number is the payoff to each of the other agents in the economy Suppose that y H > y L and ε > This payoff matrix implies that high investment is more profitable when others are also undertaking high investment, because of technological complementarities or other interactions It is then clear that there are two (pure-strategy) symmetric equilibria in this game In one, the individual expects all other agents to choose high investment and he does so himself as well In the other, the individual expects all others to choose low investment and it is the best response for him to choose low investment Since the same calculus applies to each agent, this argument establishes the existence of the two symmetric equilibria This simple game captures, in a very reduced-form way, the essence of the “Big Push” models we will study in Chapter 22 Two points are worth noting First, depending on the extent of complementarities and other economic interactions, y H can be quite large relative to y L , so there may be significant income differences in the allocations implied by the two different equilibria Thus if we believe that such a game is a good approximation to reality and different countries can end up in different equilibria, it could help in explaining very large differences in income per capita Second, the two equilibria in this game are also “Pareto-ranked”–all individuals are better off in the equilibrium in which everybody chooses high investment 164