How do coalitions get built - Evidence from an extensive form coalition game with renegotiation & externalities

Gary E. Bolton () and Jeannette Brosig

No 30, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: We investigate a three-person coalition game in which one bargainer, the builder, can propose and build a coalition over two stages. In equilibrium, coalition building ends with an efficient grand coalition, while the equilibrium path is contingent on the values of the two-person coalitions and associated externality payoffs. Considering relative payoffs need not change the equilibrium path. Nevertheless, outcomes in the experiment are often inefficient. One explanation is that bargainers have difficulties anticipating the future actions of other bargainers. This problem might be mitigated by allowing bargainers to communicate prior to each stage. A test finds that communication does in fact increase efficiency, although unevenly, and at the cost of the builder. The study implies that the nature and pattern of communication among bargainers is a critical factor in efficient coalition building.

Keywords: coalitional bargaining; communication; game theory; experiment (search for similar items in EconPapers)
JEL-codes: C7 C9 D7 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-gth and nep-pol
Date: Written
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