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Dynamic Club Formation With Coordination

Author

Listed:
  • Arnold, Tone

    (Department of Economics, University of Hohenheim)

  • Wooders, Myrna

    (Department of Economics, University of Warwick)

Abstract

We present a dynamic model of jurisdiction formation in a society of identical people. The process is described by a Markov chain that is defined by myopic optimization on the part of the players. We show that the process will converge to a Nash equilibrium club structure. Next, we allow for coordination between members of the same club, i. e. club members can form coalitions for one period and deviate jointly. We define a Nash club equilibrium (NCE) as a strategy configuration that is immune to such coalitional deviations. We show that, if one exists, this modified process will converge to a NCE configuration with probability one. Finally, we deal with the case where a NCE fails to exist due to indivisibility problems. When the population size is not an integer multiple of the optimal club size, there will be left over players who prevent the process from settling down. We define the concept of an approximate Nash club equilibrium (ANCE), which means that all but k players are playing a Nash club equilibrium, where k is defined by the minimal number of left over players. We show that the modified process converges to an ergodic set of states each of which is ANCE.

Suggested Citation

  • Arnold, Tone & Wooders, Myrna, 2002. "Dynamic Club Formation With Coordination," The Warwick Economics Research Paper Series (TWERPS) 640, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:640
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp640.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Frank H. Page, Jr. & Myrna H. Wooders, 2005. "Club Formation Games with Farsighted Agents," Vanderbilt University Department of Economics Working Papers 0529, Vanderbilt University Department of Economics.
    2. Anna Bogomolnaia & Antonio Nicolo, 2005. "Stable Assignment of Public Facilities under Congestion," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(1), pages 65-91, February.
    3. Katharine A. Anderson, "undated". "Group Formation with a Network Constraint," GSIA Working Papers 2012-E49, Carnegie Mellon University, Tepper School of Business.
    4. Ben Zissimos, 2011. "Why are Trade Agreements Regional?," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 32-45, February.
    5. T. K. Ahn & R. Mark Isaac & Timothy C. Salmon, 2008. "Endogenous Group Formation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(2), pages 171-194, April.

    More about this item

    Keywords

    Club formation ; Cooperation ; Best-reply dynamics ; Learning ; Approximate Nash club Equilibrium ; Approximate core.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations

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