The Last will be First, and the First Last: Segregation in Societies with Relative Payoff Concerns

P. Jean-Jacques Herings, Riccardo Saulle () and Christian Seel

No 249, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper studies coalition formation among individuals who differ in productivity. The output of a coalition is determined by the sum of the productivities and the size of the coalition. We consider egalitarian societies in which coalitions split their surplus equally and individualistic societies in which the surplus of a coalition is split according to productivity. Preferences of coalition members depend on their material payoffs, but are also influenced by relative payoff concerns, which relate their material payoffs to the average material payoff in the coalition. Our analysis uses two stability notions, the Core and the Myopic Stable Set. The stable partitions in both egalitarian and individualistic societies are segregated, i.e., individuals with adjacent productivities form coalitions. If some individuals are not part of a productive coalition, then these are the least productive ones for egalitarian societies and the most productive ones for individualistic societies. If all individuals have different productivity levels and there are sufficient complementarities in production, egalitarian societies induce more efficiency than individualistic societies.

Keywords: Group Formation; Segregation; Relative Payoff; Egalitarianism; Meritocracy; Social Environment (search for similar items in EconPapers)
JEL-codes: C70 C71 D62 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2020-03
New Economics Papers: this item is included in nep-cdm and nep-gth
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Journal Article: The Last Will be First, and the First Last: Segregation in Societies with Relative Pay-off Concerns (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0249

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