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Inefficiency and Social Exclusion in a Coalition Formation Game

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  • Okada, Akiro

    (Institute of Economic Research, Kyoto University)

  • Riedl, Arno

    (Department of Economics and Econometrics, University of Amsterdam)

Abstract

This paper reports the results of experiments involving a 3-person coalition formation game with an ultimatum bargaining character. The grand coalition was always the efficient coalition decision, whereas the values of the 2-person coalitions are varied such that they lead to an efficiency loss in the range of 6.7 up to 30 percent. Furthermore, the 2-person coalition implies social exclusion, since the not chosen member always receives a payoff of zero. Consistent with results reported in the literature on 2- person ultimatum bargaining experiments, negative reciprocity (i.e. punishment of unfair offers) plays a crucial role in decision making. The hypothesis that selfishness and anticipated negative reciprocity by proposers together with actual negative reciprocal behavior of responders lead to inefficient outcomes and social exclusion is strongly supported by the data. It turns out that a huge majority of proposers choose the inefficient and unfair 2-person coalition. Proposer-induced efficiency losses vary between 5 and 20 percent, and one sixth to almost one third of the population is excluded from participation.

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File URL: http://www.ihs.ac.at/publications/eco/es-64.pdf
File Function: First version, 1999
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 64.

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Length: 29 pages
Date of creation: Apr 1999
Date of revision:
Handle: RePEc:ihs:ihsesp:64

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Related research

Keywords: Coalition formation; Inefficiency; Reciprocity; Social exclusion;

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References

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  1. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  2. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  3. Guth, Werner & Tietz, Reinhard, 1990. "Ultimatum bargaining behavior : A survey and comparison of experimental results," Journal of Economic Psychology, Elsevier, vol. 11(3), pages 417-449, September.
  4. Alvin E. Roth & V. Prasnikar & M. Okuno-Fujiwara & S. Zamir, 1998. "Bargaining and market behavior in Jerusalem, Liubljana, Pittsburgh and Tokyo: an experimental study," Levine's Working Paper Archive 344, David K. Levine.
  5. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1998. "Gift exchange and reciprocity in competitive experimental markets," ULB Institutional Repository 2013/5909, ULB -- Universite Libre de Bruxelles.
  6. Schotter Andrew & Weigelt Keith & Wilson Charles, 1994. "A Laboratory Investigation of Multiperson Rationality and Presentation Effects," Games and Economic Behavior, Elsevier, vol. 6(3), pages 445-468, May.
  7. Akira Okada & Arno Riedl, 1999. "When Culture does not matter: Experimental Evidence from Coalition Formation Ultimatum Games in Austria and Japan," Tinbergen Institute Discussion Papers 99-043/1, Tinbergen Institute.
  8. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  9. Hoffman, Elizabeth & Spitzer, Matthew L, 1982. "The Coase Theorem: Some Experimental Tests," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 73-98, April.
  10. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
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