Working Paper: CEPR ID: DP3258
Authors: Carlo Carraro; Carmen Marchiori
Abstract: This Paper examines recent theoretical developments in the theory of coalition stability. It focuses on the relationship between the incentives to defect from a coalition, the size of the resulting equilibrium coalition structure and the different assumptions on membership rules, coalition behaviour, players? conjectures, etc. The Paper considers several cases. Simultaneous versus sequential moves, linear versus circular order of moves, Nash versus rational conjectures, open versus exclusive membership, monotonic versus non-monotonic payoff functions and orthogonal versus non-orthogonal reaction functions. The profitable and stable coalition will be derived for each possible configuration of the rules of the game, the pay-off functions and the membership rules. The results show that the size of the profitable and stable coalition highly depends on the chosen configuration and that the equilibrium outcome ranges from a small coalition with a few signatories to full cooperation. The Paper explores under which conditions a large stable coalition is likely to emerge, and identifies the institutional setting that favours the emergence of such coalition.
Keywords: agreements; coalitions; incentives; negotiations; stability
JEL Codes: H00; H20; H30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Coalition Membership (D71) | Individual Payoffs (J33) |
| Players' Decisions in the First Stage (C73) | Coalition Profitability (D79) |
| Player Reactions (Z22) | Coalition Stability (D74) |
| Orthogonal Freeriding (H21) | Coalition Stability (D74) |
| Nonorthogonal Freeriding (H40) | Coalition Stability (D74) |
| Configuration of Game Rules (C72) | Coalition Stability (D74) |
| Membership Rules (D71) | Coalition Size and Stability (D79) |