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Investments, positive externalities and majority bargaining

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Abstract

This paper analyzes the welfare implications of requiring either unanimity or simple majority in negotiations to distribute a budget among agents who previously can invest to generate positive consumption externalities to others. The present paper studies this setting with simple-majority bargaining, complementing Cardona and Rubí-Barceló (2014), that consider the unanimity case. It is shown that reducing the majority requirement reduces the profitability of investments and, as a consequence, alleviates over-investment, which is predominant under unanimous bargaining. Nevertheless, simple majority reduces the aggregate surplus attained at the bargaining stage. Therefore, the relative performance of the bargaining rules is uncertain. We show how it evolves with respect to the size of consumption externalities.

Suggested Citation

  • Daniel Cardona & Antoni Rubí-Barceló, 2017. "Investments, positive externalities and majority bargaining," DEA Working Papers 85, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    • Handle: RePEc:ubi:deawps:85
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    1. Cardona, Daniel & Rubí-Barceló, Antoni, 2014. "Investments and bargaining in a model with positive consumption externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 78-93.
    2. Daniel Cardona & Antoni Rubí-Barceló, 2014. "On the efficiency of equilibria in a legislative bargaining model with particularistic and collective goods," Public Choice, Springer, vol. 161(3), pages 345-366, December.
    3. Randall L. Calvert & Nathan Dietz, 2005. "Legislative Coalitions in a Bargaining Model with Externalities," Studies in Choice and Welfare, in: David Austen-Smith & John Duggan (ed.), Social Choice and Strategic Decisions, pages 227-247, Springer.
    4. Maria Montero, 2008. "Altruism, Spite and Competition in Bargaining Games," Theory and Decision, Springer, vol. 65(2), pages 125-151, September.
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    More about this item

    Keywords

    Investments; multilateral bargaining; efficiency; externalities;
    All these keywords.

    JEL classification:

    • 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
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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