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Bargaining, Coalitions and Externalities: a Comment on Maskin

Geoffroy de Clippel and Roberto Serrano

No 2008-16, Working Papers from Brown University, Department of Economics

Abstract: We first observe that two of Maskinís results do not extend beyond three players: we construct a four-player partition function with nonpositive externalities whose unique solution is inefficient, as well as a four-player characteristic function that has a unique efficient solution for each ordering of the players, but for which the payoff vector obtained by averaging these solutions over the different orderings does not coincide with the Shapley value. On the other hand, we reinforce Maskinís insight that externalities may play a crucial role in generating inefficiency. Many existing solutions on how to share profits assume or derive the property of efficiency. Yet we argue that players may have an interest to choose with whom to bargain. We illustrate how this may trigger inefficiency, especially in the presence of externalities, even if bargaining among any group of agents results in an efficient distribution of the surplus they can produce. We also provide some sufficient conditions for efficiency.

Keywords: externalities; coalition formation; Shapley value (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cdm, nep-gth and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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