Bargaining and Buyout
AbstractI introduce a noncooperative coalitional bargaining model for characteristic function form games. A player not only buys out other players' resources and rights with upfront transfers as in Gul (Econometrica, 1989), but also strategically chooses partners instead of bargaining with a randomly selected opponent. Such transactions among players are interpreted as coalition formation. The main theorem provides a general inefficiency result. If a characteristic function form game has a strict subcoalition with a strictly positive worth and a player with a strictly positive marginal contribution to the grand-coalition, then an efficient stationary subgame perfect equilibrium does not exist, as long as the discount factor is sufficiently high but strictly less than 1. Two special results are established. A grand-coalition equilibrium is impossible when players are sufficiently patient, unless the characteristic function form game is a unanimity game. For a simple game with a veto player and multiple winning coalitions, a non-minimal winning coalition is formed with positive probability. In two applications, I study players' strategic alliance behavior and the effect of the strategic behavior on inequality. First, for three-player simple games, the equilibrium payoff vector Lorenz-dominates both the Shapley-Shubik power index and the core-constrained Nash bargaining solution. Second, for wage bargaining games, workers endogenously form a union and their equilibrium payoffs can be greater than marginal products.
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Date of creation: 20 Nov 2013
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Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- 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
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-29 (All new papers)
- NEP-CDM-2013-11-29 (Collective Decision-Making)
- NEP-GTH-2013-11-29 (Game Theory)
- NEP-MIC-2013-11-29 (Microeconomics)
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