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Endogenous Coalition Formation in Contests

This paper analyzes coalition formation in a model of contests with linear costs. Agents first form groups and then compete by investing resources. Coalitions fight for prizes that are assumed to be subject to rivalry, so their value is non-increasing in the size of the group. This formulation encompasses as particular cases some models proposed in the rent-seeking literature. We show that the formation of groups generates positive spillovers and analyze two classes of games of coalition formation. A contest among individual agents is the only stable outcome when individual defections leave the rest of the group intact. More concentrated coalition structures, including the grand coalition, are stable when groups collapse after a defection, provided that rivalry is not too strong. Results in a sequential game of coalition formation suggest that there exists a non-monotonic relationship between the level of underlying rivalry and the level of social conflict.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 158.

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Length: 28
Date of creation: 30 Apr 2007
Date of revision:
Handle: RePEc:edn:esedps:158
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  1. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006.
  2. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
  3. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  4. Joan Mª Esteban & József Sákovics, 2015. "Olson vs. Coase: Coalitional Worth in Conflict," Working Papers 3, Barcelona Graduate School of Economics.
  5. Michelle R. Garfinkel, 2003. "On the Stability of Group Formation: Managing the Conflict Within," Public Economics 0312005, EconWPA, revised 04 Mar 2004.
  6. Baik, Kyung Hwan & Lee, Sanghack, 2001. "Strategic Groups and Rent Dissipation," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 672-84, October.
  7. Francis Bloch, 1995. "Endogenous Structures of Association in Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 537-556, Autumn.
  8. Sanchez-Pages, Santiago, 2006. "On the social efficiency of conflict," Economics Letters, Elsevier, vol. 90(1), pages 96-101, January.
  9. Ray, D. & Vohra, R., 1993. "Equilibrium Binding Agreements," Papers 21, Boston University - Department of Economics.
  10. Esteban, J. & Ray, D., 1999. "Collective Action and Group Size Paradox," Papers 23, El Instituto de Estudios Economicos de Galicia Pedro Barrie de la Maza.
  11. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
  12. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-34, November.
  13. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  14. Kaoru Ueda, 2002. "Oligopolization in collective rent-seeking," Social Choice and Welfare, Springer, vol. 19(3), pages 613-626.
  15. Wärneryd, Karl, 1997. "Distributional Conflict and Jurisdictional Organization," SSE/EFI Working Paper Series in Economics and Finance 173, Stockholm School of Economics.
  16. Katz, Eliakim & Tokatlidu, Julia, 1996. "Group competition for rents," European Journal of Political Economy, Elsevier, vol. 12(4), pages 599-607, December.
  17. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics.
  18. Baik, Kyung Hwan & Shogren, Jason F, 1995. " Competitive-Share Group Formation in Rent-Seeking Contests," Public Choice, Springer, vol. 83(1-2), pages 113-26, April.
  19. Francis Bloch & Santiago Sánchez-Pagés & Raphaël Soubeyran, 2006. "When does universal peace prevail? Secession and group formation in conflict," Economics of Governance, Springer, vol. 7(1), pages 3-29, 01.
  20. Michelle R. Garfinkel, 2003. "Stable Alliance Formation in Distributional Conflict," Public Economics 0305001, EconWPA, revised 16 Jun 2003.
  21. Debraj Ray & Rajiv Vohra, 2001. "Coalitional Power and Public Goods," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1355-1384, December.
  22. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  23. Cornes, Richard & Sandler, Todd, 1983. "On Commons and Tragedies," American Economic Review, American Economic Association, vol. 73(4), pages 787-92, September.
  24. Lee, Sanghack, 1995. " Endogenous Sharing Rules in Collective-Group Rent-Seeking," Public Choice, Springer, vol. 85(1-2), pages 31-44, October.
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