DYNAMIC CLUB FORMATION WITH COORDINATION

Tone Arnold and Myrna Wooders
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Tone Arnold: Department of Economics, University of Hohenheim

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: We present a dynamic model of jurisdiction formation in a society of identical people. The process is described by a Markov chain that is defined by myopic optimization on the part of the players. We show that the process will converge to a Nash equilibrium club structure. Next, we allow for coordination between members of the same club, i. e. club members can form coalitions for one period and deviate jointly. We define a Nash club equilibrium (NCE) as a strategy configuration that is immune to such coalitional deviations. We show that, if one exists, this modified process will converge to a NCE configuration with probability one. Finally, we deal with the case where a NCE fails to exist due to indivisibility problems. When the population size is not an integer multiple of the optimal club size, there will be left over players who prevent the process from settling down. We define the concept of an approximate Nash club equilibrium (ANCE), which means that all but k players are playing a Nash club equilibrium, where k is defined by the minimal number of left over players. We show that the modified process converges to an ergodic set of states each of which is ANCE.

Keywords: Club formation; Cooperation; Best-reply dynamics; Learning; Approximate Nash club Equilibrium; Approximate core. (search for similar items in EconPapers)
JEL-codes: C72 C73 D62 D71 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp640.pdf

Related works:
Working Paper: Dynamic Club Formation with Coordination (2005)
Working Paper: Dynamic Club Formation with Coordination (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:640

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