Contracting with Externalities and Outside Options
This paper proposes a model of multilateral contracting where players are engaged in two parallel interactions: they dynamically form coalitions and play a repeated normal form game with temporary and permanent decisions. This formulation encompasses many economic models with externalities and outside options. We show that when outside options are pure (i.e. independent of the actions of other players), there exists a Markov Perfect equilibrium resulting in efficient outcomes when players become perfectly patient. If outside options are not pure, all Markov perfect equilibria may be inefficient. The distribution of coalitional gains and the dynamics of coalition formation are characterized in four illustrative applications.
|Date of creation:||May 2004|
|Date of revision:|
|Contact details of provider:|| Postal: Corso Magenta, 63 - 20123 Milan|
Web page: http://www.feem.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ray, D. & Vohra, R., 1996.
"A Theory of Endogenous Coalition Structure,"
68, Boston University - Industry Studies Programme.
- Montero, M.P., 1999. "Coalition Formation in Games with Externalities," Discussion Paper 1999-121, Tilburg University, Center for Economic Research.
- Armo Gomes & Philippe Jehiel, 2001.
"Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies,"
Penn CARESS Working Papers
76ff153ae29996d16c454e473, Penn Economics Department.
- Armando Gomes & Philippe Jehiel, 2005. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 626-667, June.
- Gomes, Armando R & Jehiel, Philippe, 2001. "Dynamic Processes of Social and Economic Interactions: On the Persistence of Inefficiencies," CEPR Discussion Papers 3012, C.E.P.R. Discussion Papers.
- Genicot, Garance & Ray, Debraj, 2006.
"Contracts and externalities: How things fall apart,"
Journal of Economic Theory,
Elsevier, vol. 131(1), pages 71-100, November.
- Garance Genicot and Debraj Ray, 2003. "Contracts and Externalities: How Things Fall Apart," Working Papers gueconwpa~03-03-30, Georgetown University, Department of Economics.
- Garance Genicot & Debraj Ray, 2003. "Contracts and Externalities: How Things Fall Apart," Levine's Working Paper Archive 506439000000000235, David K. Levine.
- Hideo Konishi & Debraj Ray, 2000.
"Coalition Formation as a Dynamic Process,"
Boston College Working Papers in Economics
478, Boston College Department of Economics, revised 15 Apr 2002.
- Russell Cooper & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1992.
"Communication in Coordination Games,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 107(2), pages 739-771.
- COOPER, R. & DEJONG, D.V. & FORSYTHE, R. & Tom Ross, 1989. "Communication In Coordination Games," Carleton Industrial Organization Research Unit (CIORU) 89-07, Carleton University, Department of Economics.
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
252, David K. Levine.
- Perry, Motty & Reny, Philip J, 1994.
"A Noncooperative View of Coalition Formation and the Core,"
Econometric Society, vol. 62(4), pages 795-817, July.
- Perry, M. & Rany, P., 1992. "A Non-Cooperative View of Coalition Formation and the Core," UWO Department of Economics Working Papers 9203, University of Western Ontario, Department of Economics.
- 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.
- Akira Okada, 2000. "The Efficiency Principle in Non-Cooperative Coalitional Bargaining," The Japanese Economic Review, Japanese Economic Association, vol. 51(1), pages 34-50, 03.
- Okada, Akira, 1996. "A Noncooperative Coalitional Bargaining Game with Random Proposers," Games and Economic Behavior, Elsevier, vol. 16(1), pages 97-108, September.
- d'Aspremont, Claude & Jacquemin, Alexis, 1988.
"Cooperative and Noncooperative R&D in Duopoly with Spillovers,"
American Economic Review,
American Economic Association, vol. 78(5), pages 1133-37, December.
- d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP 823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Kalyan Chatterjee & Bhaskar Dutta & Debraj Ray & Kunal Sengupta, 1993. "A Noncooperative Theory of Coalitional Bargaining," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 463-477.
- Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
- 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.
- Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
- Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 337-388.
- repec:fth:tilbur:99121 is not listed on IDEAS
- Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
- John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Oxford University Press, vol. 53(5), pages 709-724.
- Daniel J. Seidmann & Eyal Winter, 1998. "A Theory of Gradual Coalition Formation," Review of Economic Studies, Oxford University Press, vol. 65(4), pages 793-815.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2004.78. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah)
If references are entirely missing, you can add them using this form.