Coalition formation with binding agreements

Kyle Hyndman, Debraj Ray

    Research output: Contribution to journalArticle

    Abstract

    We study coalition formation in "real time", a situation in which coalition formation is intertwined with the ongoing receipt of pay-offs. Agreements are assumed to be permanently binding: They can only be altered with the full consent of existing signatories. For characteristic function games we prove that equilibrium processes-whether or not these are history dependent-must converge to efficient absorbing states. For three-player games with externalities each player has enough veto power that a general efficiency result can be established. However, there exist four-player games in which all Markov equilibria are inefficient from every initial condition, despite the ability to write permanently binding agreements.

    Original languageEnglish (US)
    Pages (from-to)1125-1147
    Number of pages23
    JournalReview of Economic Studies
    Volume74
    Issue number4
    DOIs
    StatePublished - Oct 2007

    ASJC Scopus subject areas

    • Economics and Econometrics

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