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Group formation: The interaction of increasing returns and preferences' diversity

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Gabrielle Demange

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Abstract

In a large range of political and economic situations, group formation is driven by two opposite forces : increasing returns to size and to coordination on the one hand, heterogeneity of preferences on the other. An important question is whether competitive pressures, such as described by free mobility and free entry, lead to an efficient and organization of the society into possibly several self-sufficient groups. This chapter reviews some answers to this question, positive and negative, identifies the role of some crucial features, and discusses some difficulties linked with negative externalities and adverse selection. The sustainability of an oligopoly under increasing returns to scale and competition among jurisdictions are two prominent domains of application.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2004-30.

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Date of creation: 2004
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Handle: RePEc:del:abcdef:2004-30

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References listed on IDEAS
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  4. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February. [Downloadable!] (restricted)
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  9. Greenberg, Joseph & Weber, Shlomo, 1986. "Strong tiebout equilibrium under restricted preferences domain," Journal of Economic Theory, Elsevier, vol. 38(1), pages 101-117, February. [Downloadable!] (restricted)
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  12. Mamoru Kaneko & Myrna Holtz Wooders, 1982. "Cores of Partitioning Games," Cowles Foundation Discussion Papers 620, Cowles Foundation, Yale University. [Downloadable!]
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  13. Demange, G. & Guesnerie, R., 1996. "Nonemptiness of the Core: Low Multidimensional Decisions Spaces and One-Dimensional Preferences," DELTA Working Papers 96-09, DELTA (Ecole normale supérieure).
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  14. Farrell, Joseph & Scotchmer, Suzanne, 1988. "Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 279-97, May. [Downloadable!] (restricted)
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  15. Rose-Ackerman, Susan, 1979. "Market models of local government: Exit, voting, and the land market," Journal of Urban Economics, Elsevier, vol. 6(3), pages 319-337, July. [Downloadable!] (restricted)
  16. Sergio Currarini, 2003. "On the Stability of Hierarchies in Games with Externalities," Working Papers 2003.19, Fondazione Eni Enrico Mattei. [Downloadable!]
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  19. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-58, August. [Downloadable!] (restricted)
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  22. Demange, Gabrielle, 1994. "Intermediate preferences and stable coalition structures," Journal of Mathematical Economics, Elsevier, vol. 23(1), pages 45-58, January. [Downloadable!] (restricted)
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  23. Wilson, Robert B, 1978. "Information, Efficiency, and the Core of an Economy," Econometrica, Econometric Society, vol. 46(4), pages 807-16, July. [Downloadable!] (restricted)
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  1. Frank H. Page, Jr. & Myrna H. Wooders, 2005. "Club Formation Games with Farsighted Agents," Working Papers 0529, Department of Economics, Vanderbilt University. [Downloadable!]
  2. Frank H. Page, Jr. & Myrna H. Wooders, 2005. "Strategic Basins of Attraction, the Farsighted Core, and Network Formation Games," Working Papers 2005.36, Fondazione Eni Enrico Mattei. [Downloadable!]
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