Heterogeneous agents, embedded in a social network, first decide whether or not to adopt a new costly technology, and, then, choose their level of productivity effort. The latter choice is affected by the social norm of each individual so that she loses utility from failing to conform to the average effort of her peers (local-average model). Contrary to the local-aggregate model, we show that, in the second stage, if agents are ex ante identical but have different positions in the network, they all exert the same effort level, which corresponds to the first best. We also demonstrate that, unlike the local aggregate model, multiple equilibria may arise in the two-stage game. We show under which conditions symmetric and asymmetric subgame-perfect Nash equilibria emerge and why they are inefficient. Finally, we propose different subsidy policies that can restore the first-best solutions.
![By NASA Goddard Space Flight Center from Greenbelt, MD, USA [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0) or Public domain], via Wikimedia Commons](https://commons.wikimedia.org/wiki/File%3ANASA_Engineers_Conduct_Low_Light_Test_on_New_Technology_for_NASA_Webb_Telescope_(15119297052).jpg){kind=link}