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Potential Maximization and Coalition Government Formation

  • Rod Garratt

    (Department Economics, University of California)

  • Cheng-Zhong Qin

    (Department Economics, University of California)

  • James E. Parco

    (Department of Management, United States Air Force Academy)

  • Amnon Rapoport

    (Department of Management and Policy, University of Arizona)

A model of coalition government formation is presented in which inefficient, non-minimal winning coalitions may form in Nash equilibrium. Predictions for five games are presented and tested experimentally. The experimental data support potential maximization as a refinement of Nash equilibrium. In particular, the data support the prediction that non-minimal winning coalitions occur when the distance between policy positions of the parties is small relative to the value of forming the government. These conditions hold in games 1, 3, 4 and 5, where subjects played their unique potential-maximizing strategies 91, 52, 82 and 84 percent of the time, respectively. In the remaining game (Game 2) experimental data support the prediction of a minimal winning coalition. Players A and B played their unique potential-maximizing strategies 84 and 86 percent of the time, respectively, and the predicted minimal-winning government formed 92 percent of the time (all strategy choices for player C conform with potential maximization in Game 2). In Games 1, 2, 4 and 5 over 98 percent of the observed Nash equilibrium outcomes were those predicted by potential maximization. Other solution concepts including iterated elimination of dominated strategies and strong/coalition proof Nash equilibrium are also tested.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.82.

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Date of creation: May 2004
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Handle: RePEc:fem:femwpa:2004.82
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  1. Slikker, M. & Dutta, P.K. & van den Nouweland, C.G.A.M. & Tijs, S.H., 1998. "Potential Maximizers and Network Formation," Research Memorandum 758, Tilburg University, School of Economics and Management.
  2. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Slikker, M., 1999. "Coalition Formation and Potential Games," Discussion Paper 1999-83, Tilburg University, Center for Economic Research.
  4. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  5. Qin, Cheng-Zhong, 1996. "Endogenous Formation of Cooperation Structures," Journal of Economic Theory, Elsevier, vol. 69(1), pages 218-226, April.
  6. J. Keith Murnighan & Alvin E. Roth, 1977. "The Effects of Communication and Information Availability in an Experimental Study of a Three-Person Game," Management Science, INFORMS, vol. 23(12), pages 1336-1348, August.
  7. repec:ebl:ecbull:v:3:y:2003:i:5:p:1-9 is not listed on IDEAS
  8. repec:ebl:ecbull:v:3:y:2003:i:12:p:1-11 is not listed on IDEAS
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