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Group Stability of Hierarchies in Games with Spillovers


  • Sergio Currarini

    () (Department of Economics, University Of Venice Ca� Foscari)


In a recent paper, Demange (2004) has shown that hierarchical organizations can guarantee the existence of stable cooperative outcomes by appropriately allocating the blocking power to a subset of coalitions, the �teams�. This paper extends the analysis of Demange to cooperative problems with spillovers. We show that if blocking coalitions have �pessimistic expectations� on the reaction of outsiders, in all cooperative problems there exists an allocation which is blocked by no team. We also study the case of �passive expectations�, for which the same result holds in all games with negative spillovers, while stable allocations may fail to exist in games with positive spillovers. In the latter class of games, however, hierarchies are shown to be the most stable organizational forms.

Suggested Citation

  • Sergio Currarini, 2006. "Group Stability of Hierarchies in Games with Spillovers," Working Papers 2006_14, Department of Economics, University of Venice "Ca' Foscari".
  • Handle: RePEc:ven:wpaper:2006_14

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    References listed on IDEAS

    1. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March.
    2. Gabrielle Demange, 2004. "On Group Stability in Hierarchies and Networks," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 754-778, August.
    3. Kaneko, Mamoru & Wooders, Myrna Holtz, 1982. "Cores of partitioning games," Mathematical Social Sciences, Elsevier, vol. 3(4), pages 313-327, December.
    4. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-1064, July.
    5. Yukihiko Funaki & Takehiko Yamato, 1999. "The core of an economy with a common pool resource: A partition function form approach," International Journal of Game Theory, Springer;Game Theory Society, vol. 28(2), pages 157-171.
    6. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
    7. Radner, Roy, 1993. "The Organization of Decentralized Information Processing," Econometrica, Econometric Society, vol. 61(5), pages 1109-1146, September.
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    Cited by:

    1. Gabrielle Demange, 2017. "The stability of group formation," Revue d'économie politique, Dalloz, vol. 127(4), pages 495-516.
    2. Sergio Currarini, 2007. "Network design in games with spillovers," Review of Economic Design, Springer;Society for Economic Design, vol. 10(4), pages 305-326, March.
    3. Sergio Currarini & Marco A. Marini, 2013. "Majority Rule and Coalitional Stability," Economics Bulletin, AccessEcon, vol. 33(3), pages 1660-1668.

    More about this item


    Organizational design; networks; group stability; spillovers.;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games


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