Rotating Leadership and Coalitional Stability

Rotating leadership is prevalent in international relations. Examples include the presidencies of the EU Council, the G7, and the African Union. Why would self-interested actors take turns rather than, for instance, have a permanent leader? We study this question in a repeated three-player coordination game of conflicting interests, where agents want to coordinate on a common action (leadership), but disagree on what is the best action to coordinate on (who should lead at any point in time). Standard subgame perfection provides no answer to the research question since it allows for many leadership arrangements, including a permanent leader, or the exclusion of one agent from leadership, or fully rotating leadership. We show, however, that they differ in robustness to coalitional deviations. Asymmetric arrangements give disadvantaged players persistent incentives to form a breakaway coalition against the incumbent. By evenly distributing leadership opportunities, full rotation emerges as the most stable self-enforcing institution. Results from a preregistered laboratory experiment support the relevance of this mechanism also to interpersonal relations: rotations predominate when interests are highly heterogeneous, while permanent leadership arises mainly when interests are relatively aligned. Refuting predictions from inequality aversion, rotations remain predominant even when one player receives an additional choice-independent lump-sum income, while strategies aimed at reducing this payoff gap remain rare. This suggests that the risk of coalitional breakdown is an important driver of why also individuals – not just nations – share decision making evenly.