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How do coalitions get built - Evidence from an extensive form coalition game with renegotiation & externalities

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  • Gary E Bolton
  • Jeannette Brosig

Abstract

We investigate a three-person coalition game in which one bargainer, the builder, can propose and build a coalition over two stages. In equilibrium, coalition building ends with an efficient grand coalition, while the equilibrium path is contingent on the values of the two-person coalitions and associated externality payoffs. Considering relative payoffs need not change the equilibrium path. Nevertheless, outcomes in the experiment are often inefficient. One explanation is that bargainers have difficulties anticipating the future actions of other bargainers. This problem might be mitigated by allowing bargainers to communicate prior to each stage. A test finds that communication does in fact increase efficiency, although unevenly, and at the cost of the builder. The study implies that the nature and pattern of communication among bargainers is a critical factor in efficient coalition building.

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Bibliographic Info

Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 30.

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Date of creation: 06 Mar 2007
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Handle: RePEc:kls:series:0030

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Keywords: coalitional bargaining; communication; game theory; experiment;

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  1. Akira Okada & Arno Riedl, 1999. "Inefficiency and Social Exclusion in a Coalition Formation Game: Experimental Evidence," Tinbergen Institute Discussion Papers 99-044/1, Tinbergen Institute.
  2. G. Bolton, 2010. "A comparative model of bargaining: theory and evidence," Levine's Working Paper Archive 263, David K. Levine.
  3. Johnson, Eric J. & Camerer, Colin & Sen, Sankar & Rymon, Talia, 2002. "Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining," Journal of Economic Theory, Elsevier, vol. 104(1), pages 16-47, May.
  4. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  5. Ochs, Jack & Roth, Alvin E, 1989. "An Experimental Study of Sequential Bargaining," American Economic Review, American Economic Association, vol. 79(3), pages 355-84, June.
  6. G Frechette & J Kagel & M Morelli, 2004. "Behavioral Identification in Coalition Bargaining: An Experimental Analysis of Demand Bargaining and Alternating Offers," Levine's Bibliography 122247000000000006, UCLA Department of Economics.
  7. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  8. Armando Gomes, 2005. "Multilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 73(4), pages 1329-1350, 07.
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