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Group stability of hierarchies in games with spillovers

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  • Currarini, Sergio

Abstract

In a recent paper, Demange (2004) has shown that hierarchical organizations can guarantee the existence of stable cooperative outcomes by appropriately allocating the blocking power to a subset of coalitions, the �teams�. This paper extends the analysis of Demange to cooperative problems with spillovers. We show that if blocking coalitions have �pessimistic expectations� on the reaction of outsiders, in all cooperative problems there exists an allocation which is blocked by no team. We also study the case of �passive expectations�, for which the same result holds in all games with negative spillovers, while stable allocations may fail to exist in games with positive spillovers. In the latter class of games, however, hierarchies are shown to be the most stable organizational forms.
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  • Currarini, Sergio, 2007. "Group stability of hierarchies in games with spillovers," Mathematical Social Sciences, Elsevier, vol. 54(3), pages 187-202, December.
    • Handle: RePEc:eee:matsoc:v:54:y:2007:i:3:p:187-202
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    References listed on IDEAS

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    2. Gabrielle Demange, 2004. "On Group Stability in Hierarchies and Networks," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 754-778, August.
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    Cited by:

    1. Gabrielle Demange, 2017. "The stability of group formation," Revue d'économie politique, Dalloz, vol. 127(4), pages 495-516.
    2. Sergio Currarini, 2007. "Network design in games with spillovers," Review of Economic Design, Springer;Society for Economic Design, vol. 10(4), pages 305-326, March.
    3. Sergio Currarini & Marco A. Marini, 2013. "Majority Rule and Coalitional Stability," Economics Bulletin, AccessEcon, vol. 33(3), pages 1660-1668.

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    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games

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