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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.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2006/WP_DSE_Currarini_14_06.pdf
File Function: First version, 2006
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Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2006_14.

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Length: 22 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:ven:wpaper:2006_14
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  1. 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, vol. 28(2), pages 157-171.
  2. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  3. Mamoru Kaneko & Myrna Holtz Wooders, 1982. "Cores of Partitioning Games," Cowles Foundation Discussion Papers 620, Cowles Foundation for Research in Economics, Yale University.
  4. Ray, D. & Vohra, R., 1993. "Equilibrium Binding Agreements," Papers 21, Boston University - Department of Economics.
  5. Gabrielle Demange, 2004. "On group stability in hierarchies and networks," Post-Print halshs-00581662, HAL.
  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 1109-46, September.
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