Farsightedness in a Coalitional Great Fish War

We explore the implications of the farsightedness assumption on the conjectures of players in a coalitional Great Fish War model with symmetric players, derived from the seminal model of Levhari and Mirman (Bell J Econ 11:649–661, 1980). The farsightedness assumption for players in a coalitional game acknowledges the fact that a deviation from a single player will lead to the formation of a new coalition structure as the result of possibly successive moves of her rivals in order to improve their payoffs. It departs from mainstream game theory in that it relies on the so-called rational conjectures, as opposed to the traditional Nash conjectures formed by players on the behavior of their rivals. For values of the biological parameter and the discount factor more plausible than the ones used in the current literature, the farsightedness assumption predicts a wide scope for cooperation in non-trivial coalitions, sustained by credible threats of successive deviations that defeat the shortsighted payoff of any prospective deviator. Compliance or deterrence of deviations may also be addressed by acknowledging that information on the fish stock or on the catch policies actually implemented may be available only with a delay (dynamic farsightedness). In that case, the requirements are stronger and the sizes and number of possible farsighted stable coalitions are different. In the sequential move version, which could mimic some characteristics of fishery models, the results are not less appealing, even if the dominant player or dominant coalition with first move advantage assumption provides a case for cooperation with the traditional Nash conjectures.     

Unique stability in simple coalition formation games

We investigate the uniqueness of stable coalition structures in a simple coalition formation model, for which specific coalition formation games, such as the marriage and roommate models, are special cases that are obtained by restricting the coalitions that may form. The main result is a characterization of collections of permissible coalitions which ensure that there is a unique stable coalition structure in the corresponding coalition formation model. In particular, we show that only single-lapping coalition formation models have a unique stable coalition structure for each preference profile, where single-lapping means that two coalitions cannot have more than one member in common, and coalitions do not form cycles. We also give another characterization using a graph representation, explore the implications of our results for matching models, and examine the existence of strategyproof coalition formation rules.     

Implementing partial tax harmonization in an asymmetric tax competition game with repeated interaction

This paper investigates the conditions under which partial harmonization for capital taxation is sustained in a repeated interactions model of tax competition when there are three countries with heterogenous capital endowments. We show that regardless of the structure of the coalition (i.e., full or partial tax coordination), whether partial tax harmonization is sustainable or not crucially depends on the extent to which the capital endowment of the medium‐sized country is similar to that of the large or small country. The most noteworthy finding is that the closer the capital endowment of the median country is to the average one, the less likely the tax harmonization including the median country is to prevail and the more likely the partial tax harmonization excluding the median country is to prevail. We also show that partial tax harmonization makes the member countries of the tax union better off and non‐member countries worse off, which stands in sharpe contrast with previous studies, such as Konrad and Schjelderup (1999) and Bucovetsky (2009).     

Decentralized Management of a Fishery

We construct an economic mechanism to realize in Nash equilibrium an optimal consumption time path of a natural resource. For exposition convenience, the analysis is conducted within the model initiated by Levhari and Mirman (Bell J Econ 11:322–334, 1980). This framework allows us to explicitely compute the consumption time paths of the resource, associated with an open-access regime, with a cooperative management and with a (stationary Markovian) Nash equilibrium of the difference game induced by the proposed mechanism.     

Multilateral Bargaining Problems

In many situations in economics and political science there are gains from forming coalitions but conflict over which coalition to form and how to distribute the gains. This paper presents an approach to suchmultilateral bargaining problems. Asolutionto a multilateral bargaining problem specifies an agreement for each coalition that is consistent with the bargaining process in every coalition. We establish the existence of such solutions, show that they are determined by reservation prices, and characterize these reservation prices as the payoffs ofsubgame perfect equilibrium outcomesof a non-cooperative bargaining model.Journal of Economic LiteratureClassification Numbers: C71, C72, C78.     

Stable governments and the semistrict core

We consider the class of proper monotonic simple games and study coalition formation when an exogenous weight vector and a solution concept are combined to guide the distribution of power within winning coalitions. These distributions induce players' preferences over coalitions in a hedonic game. We formalize the notion of semistrict core stability, which is stronger than the standard core concept but weaker than the strict core notion and derive two characterization results for the semistrict core, depending on conditions we impose on the solution concept. A bounded power condition, which connects exogenous weights and the solution, turns out to be crucial. It generalizes a condition termed “absence of the paradox of smaller coalitions” that was previously used to derive core existence results.     

The Stability of Hedonic Coalition Structures

We consider the partitioning of a society into coalitions in purely hedonic settings, i.e., where each player's payoff is completely determined by the identity of other members of her coalition. We first discuss how hedonic and nonhedonic settings differ and some sufficient conditions for the existence of core stable coalition partitions in hedonic settings. We then focus on a weaker stability condition: individual stability, where no player can benefit from moving to another coalition while not hurting the members of that new coalition. We show that if coalitions can be ordered according to some characteristic over which players have single-peaked preferences, or where players have symmetric and additively separable preferences, then there exists an individually stable coalition partition. Examples show that without these conditions, individually stable coalition partitions may not exist. We also discuss some other stability concepts, and the incompatibility of stability with other normative properties. Journal of Economic Literature Classification Numbers: C71, A14, D20.     

Stable Coalition Structures with Externalities

This paper argues that the sign of external effects of coalition formation provides a useful organizing principle in examining economic coalitions. In many interesting economic games, coalition formation creates eithernegativeexternalities orpositiveexternalities for nonmembers. Examples of negative externalities are research coalitions and customs unions. Examples of positive externalities include output cartels and public goods coalitions. I characterize and compare stable coalition structures under the following three rules of coalition formation: the Open Membership game of Yi and Shin (1995), the Coalition Unanimity game of Bloch (1996), and the Equilibrium Binding Agreements of Ray and Vohra (1994).Journal of Economic LiteratureClassification Numbers: C72, C71.     

A note on stable and sustainable global tax coordination with Leviathan governments

Itaya et al. (2014) study the conditions for sustainability and stability of capital tax coordination in a repeated game model with tax-revenue maximizing governments. One of their major results is that the grand tax coalition is never stable and sustainable. The purpose of this note is to prove that there are conditions under which the grand tax coalition is stable and sustainable in Itaya et al.'s model.     

Matching soulmates

We study iterated matching of soulmates (IMS), a recursive process of forming coalitions that are mutually preferred by members to any other coalition containing individuals as yet unmatched by this process. If all players can be matched this way, preferences are IMS-complete. A mechanism is a soulmate mechanism if it allows the formation of all soulmate coalitions. Our model follows Banerjee, Konishi, and Sönmez, except reported preferences are strategic variables. We investigate the incentive and stability properties of soulmate mechanisms. In contrast to prior literature, we do not impose conditions that ensure IMS-completeness. A fundamental result is that, (1) any group of players who could change their reported preferences and mutually benefit does not contain any players who were matched as soulmates and reported their preferences truthfully. As corollaries, (2) for any IMS-complete profile, soulmate mechanisms have a truthful strong Nash equilibrium, and (3) as long as all players matched as soulmates report their preferences truthfully, there is no incentive for any to deviate. Moreover, (4) soulmate coalitions are invariant core coalitions—that is, any soulmate coalition will be a coalition in every outcome in the core. To accompany our theoretical results, we present real-world data analysis and simulations that highlight the prevalence of situations in which many, but not all, players can be matched as soulmates. In the Appendix we relate IMS to other well-known coalition formation processes.     

Coalitional stability under perfect foresight

Summary. We analyze strategic social environments where coalitions can form through binding or nonbinding agreements and actions of a coalition may impose externalities upon the welfare of the rest of the players. We define a solution concept that (1) captures the perfect foresight of the players that has been overlooked in the literature (e.g., Harsanyi [10] and Chwe [6]) and (2) identifies the coalitions that are likely to form and the “stable” outcomes that will not be replaced by any coalition of rational (and hence farsighted) players. The proposed solution concept thereby offers a notion of agreements and coalition formation in complex social environments. Received: February 12, 1996; revised version: March 3, 1997     

Aristotle vs. Plato: The classical origins of capitalist & socialist political economies*

Competing definitions of justice in Plato's Republic and Aristotle's Politics indicate the existence of two distinct economic systems with different priorities. The three-class society of the Platonic economy (guardians, auxiliaries, producers) gives rise to guardians who by virtue are expected to enforce output targets on producers directly or through auxiliaries. The three-class society of the Aristotelian economy (rich, middle, poor) facilitates the emergence of different ruling coalitions and compensates the efficiency losses of central planning with political gains derived from representative governance. In the Aristotelian economy, the middle class is better off than in the Platonic economy (auxiliaries), because a just society (polity) is achieved under its coalition with the rich. I argue that the equilibrium solutions of the Platonic and Aristotelian economic systems provide analytical insights on the origins of capitalist and socialist political economies.     

ON THE NEUTRALITY OF COALITION FORMATION IN A PURE BARGAINING PROBLEM*

We consider the sequential bargaining game à la Stahl–Binmore–Rubinstein with random proposers, juxtaposing an ex ante coalition formation stage to their bargaining game. On the basis of the expected outcomes in the negotiation over how to split a dollar, players can form coalitions in a sequential manner, within each of which they can redistribute their payoffs. It turns out that the grand coalition does form, and that each player receives his discounted expected payoff, which is obtained by playing as a single player in the negotiation, although there could be many equilibria in the bargaining stage.     

Stability of international climate coalitions — A comparison of transfer schemes

This paper studies the impact of pragmatic and optimal transfer schemes on the incentives for regions to join international climate agreements. With an applied model that comprises twelve world regions we investigate: (i) a benchmark without transfers, (ii) scenarios with allocation-based rules where coalition members receive tradable emission permits proportional to initial or future emissions, (iii) scenarios with outcome-based rules where the coalition surplus is distributed proportional to emissions, and (iv) a scenario based on an optimal sharing rule where the coalition surplus is distributed proportional to outside option payoffs.We find that well-designed transfer schemes can stabilise larger coalitions and increase global abatement levels. In our applied setting we find that for allocation-based and outcome-based rules only small coalitions are stable, and, in the case of grandfathered emission permits, there is no stable coalition at all. Some obstacles associated with grandfathered emission permits can be overcome by incorporating the expected growth of emissions in developing countries in the distribution of emission permits. For the optimal transfer scheme we find that larger coalitions, which include key players such as the United States and China, can be stable, but no transfer scheme is capable of stabilising the Grand Coalition.     

Existence of equilibria for economies with externalities and a measure space of consumers

Summary. This paper considers an exchange economy with a measure space of agents and consumption externalities, which take into account two possible external effects on consumers preferences: dependence upon prices and dependence upon other agents consumption. We first consider a model with a general externality mapping and we then treat the particular case of reference coalition externalities, in which the preferences of each agent a are influenced by prices and by the global or the mean consumption of the agents in finitely many (exogenously given) reference coalitions associated with agent a. Our paper provides existence results of equilibria in both models when consumers have transitive preferences. It extends in exchange economies the standard results by Aumann [2], Schmeidler [16], Hildenbrand [12], and previous results by Greenberg et al. [11] for price dependent preferences, Schmeidler [17] for fixed reference coalitions and Noguchi [15] for a more particular concept of reference coalitions. We also mention related results obtained independently by Balder [4].Received: 25 May 2004, Revised: 19 October 2004, JEL Classification Numbers: D62, D51, H23. Correspondence to: Bernard CornetThis paper has benefited from comments and valuable discussions with Erik Balder, Stefan Balint, Jean-Marc Bonnisseau, Alessandro Citanna, Gael Giraud, Filipe Martins-da-Rocha, Jean-Philippe Médecin, Jean-François Mertens, Nicholas Yannelis and an anonymous referee.     

A simple model of coalitional bidding

Summary. We analyze a model of coalitional bidding in which coalitions form endogenously and compete with each other. Since the nature of this competition influences the way in which agents organize themselves into coalitions, our main aim is to characterize the equilibrium coalition structure and the resulting bids. We do so in a simple model in which the seller may have good reason to allow joint bidding. In particular, we study a model in which the agents are budget constrained, and are allowed to form coalitions to pool their finances before engaging in the first price auction. We show that if the budget constraint is very severe, the equilibrium coalition structure consists of two coalitions, one slightly larger than the other; interestingly, it is not the grand coalition. This equilibrium coalition structure is one which yields (approximately) the maximum expected revenue. Thus the seller can induce the optimal (revenue maximizing) degree of cooperation among budget constrained buyers simply by permitting them to collude. Received: June 25, 1999; revised version: November 13, 2000     

Measuring Inequalities without Linearity in Envy: Choquet Integrals for Symmetric Capacities

The (generalized) Gini indices rely on the social welfare function of a decision maker who behaves in accordance with Yaari's model, with a function f that transforms frequencies. This SWF can also be represented as the weighted sum of the welfare of all the possible coalitions in the society, where the welfare of a coalition is defined as the income of the worst-off member of that coalition. We provide a set of axioms (Ak) and prove that the three following statements are equivalent: (i) the decision maker respects (Ak), (ii) f is a polynomial of degree k, (iii) the weight of all coalitions with more than k members is equal to zero. Journal of Economic Literature Classification Number: D63.     

RISKY VERSUS RISKLESS BARGAINING PROCEDURES: THE AUMANN‐ROTH CONTROVERSY REVISITED*

In a series of papers, Aumann and Roth discussed a game in which players can cooperate in pairs and two of them prefer to form a coalition with each other. Roth argued that the only rational outcome is that the players who prefer each other form a coalition; Aumann argued that all three coalitions are possible because the players have a problem of expectation coordination. A non‐cooperative analysis provides additional support for Aumann's arguments and shows that the difference between Aumann's and Roth's views can be traced back to a difference (risky versus/riskless) in the bargaining procedure.     

Equilibrium binding agreements: a comment

To construct their Equilibrium Binding Agreements, Ray and Vohra (J. Econ. Theory, 73 (1997) 30-78) define a concept of an equilibrium between coalitions and prove its existence for any coalition structure. We show that this result crucially depends on the quasi-concavity of the utility functions, which in turn depends on the type of mixed strategies used by the coalitions. When coalitions use uncorrelated mixed strategies utility functions may not be quasi-concave and an equilibrium may not exist. However, if coalitions use correlated strategies, an equilibrium always exist.     

Contracting with externalities and outside options

This paper proposes a model of multilateral contracting where players are engaged in two parallel interactions: they dynamically form coalitions and play a repeated normal form game with temporary and permanent decisions. We show that when outside options are independent of the actions of other players all Markov perfect equilibrium without coordination failures are efficient, regardless of externalities created by interim actions. Otherwise, in the presence of externalities on outside options, all Markov perfect equilibrium may be inefficient. This formulation encompasses many economic models, and we analyze the distribution of coalitional gains and the dynamics of coalition formation in four illustrative applications.