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On group stability in hierarchies and networks

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  • Gabrielle Demange

    (DELTA - Département et Laboratoire d'Economie Théorique et Appliquée - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR8545)

Abstract

A hierarchical structure is a widespread organizational form in many areas. My aim in this paper is to provide a rationale for this fact based on two premises. First, a group organizes itself so as to achieve efficient coordination. Second, efficient coordination is achieved only if subgroups as well as individuals agree to cooperate. Even in situations in which there are gains to coordination, the agreement of each possible subgroup may be impossible to reach, resulting in instabilities. I argue that a hierarchical organization avoids such instabilities by distributing in an optimal way autonomy and blocking power to a restricted set of subgroups. Comparisons with nondirected networks are drawn.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00581662.

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Date of creation: 2004
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Publication status: Published, Journal of Political Economy, 2004, 112, 4, 754-778
Handle: RePEc:hal:journl:halshs-00581662

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Keywords: Efficient Coordination; Instabilities; Hierarchical structure;

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  1. Salvador Barber?Author-Email: salvador.barbera@uab.es & Lars Ehlers, 2002. "Free Triples, Large Indifference Classes and the Majority Rule," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 512.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, INFORMS, vol. 8(3), pages 325-343, April.
  3. Mamoru Kaneko & Myrna Holtz Wooders, 1982. "Cores of Partitioning Games," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 620, Cowles Foundation for Research in Economics, Yale University.
  4. Guesnerie, Roger & Oddou, Claude, 1988. " Increasing Returns to Size and Their Limits," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 90(3), pages 259-73.
  5. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 716-27, September.
  6. Debraj Ray & Rajiv Vohra, 2001. "Coalitional Power and Public Goods," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(6), pages 1355-1384, December.
  7. Sharkey,William W., 1983. "The Theory of Natural Monopoly," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521271943.
  8. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, Elsevier, vol. 20(2), pages 201-237, August.
  9. Saijo, Tatsuyoshi, 1988. "Strategy Space Reduction in Maskin's Theorem: Sufficient Conditions for Nash Implementation," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 693-700, May.
  10. Alfred D. Chandler, 1969. "Strategy and Structure: Chapters in the History of the American Industrial Enterprise," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262530090, December.
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