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The Last will be First, and the First Last: Segregation in Societies with Positional Externalities

P. Jean-Jacques Herings (), Riccardo Saulle and Christian Seel
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Riccardo Saulle: General Economics 1 (Micro)
Christian Seel: General Economics 1 (Micro)

No 27, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: This paper studies coalition formation among individuals who differ in productivity. The output of a coalition is determined by the sum of productivities if the coalition exceeds a minimal threshold of members. We consider competitive societies in which the surplus of a coalition is split according to productivity and egalitarian societies in which coalitions split their surplus equally. Preferences of coalition members depend on their material payoffs, but are also influenced by positional 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. Both competitive and egalitarian societies lead to segregated partition structures. For competitive societies, all stable allocations are based on bottom-up segregation, i.e., individuals with adjacent productivities form coalitions and if some individuals are not part of a productive coalition, then these are the most productive ones. For egalitarian societies, we obtain top-down segregation in all stable allocations. Again it holds that individuals with adjacent productivities form coalitions, but now the least productive individuals may not be part of any productive coalition. If all individuals have different productivity levels, then the material efficiency of competitive societies is below that of egalitarian 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)
New Economics Papers: this item is included in nep-cdm, nep-gth and nep-hpe
Date: 2018-12-17
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