Stability and Segregation in Group Formation |
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| Authors: | Igal Milchtaich Eyal Winter |
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| Institution: | Department of Economics, Bar-Ilan University, Ramat-Gan, 52900, Israelf1;b Managerial Economics and Decision Sciences, J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois, 60208;Department of Economics, The Hebrew University of Jerusalem, Jerusalem, 91905, Israel, f2;d Department of Economics, Washington University, St. Louis, Missouri, 63130 |
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| Abstract: | This paper presents a model of group formation based on the assumption that individuals prefer to associate with people similar to them. It is shown that, in general, if the number of groups that can be formed is bounded, then a stable partition of the society into groups may not exist. (A partition is defined as stable if none of the individuals would prefer be in a different group than the one he is in.) However, if individuals' characteristics are one-dimensional, then a stable partition always exists. We give sufficient conditions for stable partitions to be segregating (in the sense that, for example, low-characteristic individuals are in one group and high-characteristic ones are in another) and Pareto efficient. In addition, we propose a dynamic model of individual myopic behavior describing the evolution of group formation to an eventual stable, segregating, and Pareto efficient partition. Journal of Economic Literature Classification Numbers: C72, H41. |
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| Keywords: | group formation coalition structure local public goods segregation myopic optimization weak acyclicity |
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