Bargaining, coalitions and externalities: A comment on Maskin
AbstractWe first observe that two of Maskin's results do not extend beyond three players: we construct a four-player partition function with non-positive externalities whose unique solution is inefficient, as well as a four-player characteristic function that has a unique efficient solution for each ordering of the players, but for which the payoff vector obtained by averaging these solutions over the different orderings does not coincide with the Shapley value. On the other hand, we reinforce Maskins insight that externalities may play a crucial role in generating inefficiency. Many existing solutions on how to share profits assume or derive the property of efficiency. Yet we argue that players may have an interest to choose with whom to bargain. We illustrate how this may trigger inefficiency, especially in the presence of externalities, even if bargaining among any group of agents results in an efficient distribution of the surplus they can produce. We also provide some sufficient conditions for efficiency.
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Bibliographic InfoPaper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2008-11.
Date of creation: 20 Nov 2008
Date of revision:
externalities; coalition formation; Shapley value;
Other versions of this item:
- Geoffroy de Clippel & Roberto Serrano, 2008. "Bargaining, Coalitions and Externalities: a Comment on Maskin," Working Papers 2008-16, Brown University, Department of Economics.
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D62 - Microeconomics - - Welfare Economics - - - Externalities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-14 (All new papers)
- NEP-CDM-2008-12-14 (Collective Decision-Making)
- NEP-GTH-2008-12-14 (Game Theory)
- NEP-NET-2008-12-14 (Network Economics)
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