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Investments, Positive Externalities, and Majority Bargaining

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  • Daniel Cardona
  • Antoni Rubí-Barceló

Abstract

This study analyzes the welfare implications of requiring either unanimity or a simple majority in negotiations to distribute a budget among three agents who could previously invest to generate positive consumption externalities for others. This complements Cardona and Rubí-Barceló (2014), who consider only the unanimity case. We show that reducing the majority requirement reduces the profitability of investments, and consequently alleviates overinvestment, which is predominant under unanimous bargaining. Nevertheless, requiring a simple majority reduces the aggregate surplus attained in the bargaining stage. Therefore, the relative performance of the bargaining rules is uncertain. We show how the size of consumption externalities affects this performance.

Suggested Citation

  • Daniel Cardona & Antoni Rubí-Barceló, 2019. "Investments, Positive Externalities, and Majority Bargaining," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(4), pages 664-691.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2019-0034
    DOI: 10.1628/jite-2019-0034
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    References listed on IDEAS

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    1. Cardona, Daniel & Rubí-Barceló, Antoni, 2014. "Investments and bargaining in a model with positive consumption externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 78-93.
    2. Daniel Cardona & Antoni Rubí-Barceló, 2014. "On the efficiency of equilibria in a legislative bargaining model with particularistic and collective goods," Public Choice, Springer, vol. 161(3), pages 345-366, December.
    3. Randall L. Calvert & Nathan Dietz, 2005. "Legislative Coalitions in a Bargaining Model with Externalities," Studies in Choice and Welfare, in: David Austen-Smith & John Duggan (ed.), Social Choice and Strategic Decisions, pages 227-247, Springer.
    4. Maria Montero, 2008. "Altruism, Spite and Competition in Bargaining Games," Theory and Decision, Springer, vol. 65(2), pages 125-151, September.
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    More about this item

    Keywords

    investments; holdup; multilateral bargaining; consensus requirement; efficiency; externalities;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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