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Bargaining, coalitions and externalities: A comment on Maskin

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We first observe that two of Maskin's results do not extend beyond three players: we construct a four-player partition function with non-positive externalities whose unique solution is inefficient, as well as a four-player characteristic function that has a unique efficient solution for each ordering of the players, but for which the payoff vector obtained by averaging these solutions over the different orderings does not coincide with the Shapley value. On the other hand, we reinforce Maskins insight that externalities may play a crucial role in generating inefficiency. Many existing solutions on how to share profits assume or derive the property of efficiency. Yet we argue that players may have an interest to choose with whom to bargain. We illustrate how this may trigger inefficiency, especially in the presence of externalities, even if bargaining among any group of agents results in an efficient distribution of the surplus they can produce. We also provide some sufficient conditions for efficiency.

Suggested Citation

  • Geoffroy de Clippel & Roberto Serrano, 2008. "Bargaining, coalitions and externalities: A comment on Maskin," Working Papers 2008-11, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  • Handle: RePEc:imd:wpaper:wp2008-11
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    Cited by:

    1. Alejandro Caparrós & Jean-Cristophe Péreau, 2010. "Coalition formation and bargaining power: theory and application to international negotiations on public goods," Working Papers 1017, Instituto de Políticas y Bienes Públicos (IPP), CSIC.
    2. Borm, Peter & Ju, Yuan & Wettstein, David, 2015. "Rational bargaining in games with coalitional externalities," Journal of Economic Theory, Elsevier, vol. 157(C), pages 236-254.
    3. Wood, Peter John, 2010. "Climate Change and Game Theory: a Mathematical Survey," Working Papers 249379, Australian National University, Centre for Climate Economics & Policy.
    4. Debraj Ray & Rajiv Vohra, 2013. "Coalition Formation," Working Papers 2013-1, Brown University, Department of Economics.
    5. Manfred Kerber & Colin Rowat, 2012. "Sufficient Conditions for the Unique Stable Sets in Three Agent Pillage Games," Discussion Papers 12-11, Department of Economics, University of Birmingham.
    6. Rowat, Colin & Kerber, Manfred, 2014. "Sufficient conditions for unique stable sets in three agent pillage games," Mathematical Social Sciences, Elsevier, vol. 69(C), pages 69-80.
    7. Peter Wood, 2010. "Climate Change and Game Theory," Environmental Economics Research Hub Research Reports 1062, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
    8. Peter J. Wood, 2010. "Climate Change and Game Theory: A Mathematical Survey," CCEP Working Papers 0210, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    externalities; coalition formation; Shapley value;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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