Abstract
This paper analyzes coalition formation in a model of contests with linear costs. Agents first form groups and then compete by investing resources. Coalitions fight for a prize that is assumed to be subject to rivalry, so its value is non-increasing in the size of the group that obtains it. This formulation encompasses as particular cases some models proposed in the rent-seeking literature. We show that the formation of groups generates positive spillovers and analyze two classes of games of coalition formation. A contest among individual agents is the only stable outcome when individual defections leave the rest of the group intact. More concentrated coalition structures, including the grand coalition, are stable when groups collapse after a defection, provided that rivalry is not too strong. Results in a sequential game of coalition formation suggest that there exists a non-monotonic relationship between the level of underlying rivalry and the level of social conflict.
“If men were supplied with every thing in the same abundance, justice and injustice would be equally unknown among mankind.”
David Hume (1740), A Treatise of Human Nature
Similar content being viewed by others
References
Aumann R (1959) Acceptable points and general n-person cooperative games. Ann Math Stud 40:287–324
Baik KH, Lee S (1997) Collective rent reeking with endogenous group sizes. Eur J Polit Econ 13(1):121–130
Baik KH, Lee S (2001) Strategic groups and rent dissipation. Econ Inq 39(4):672–684
Baik KH, Shogren J (1995) Competitive share group formation in rent seeking contests. Public Choice 83(1–2):113–126
Bernheim D, Peleg B, Whinston M (1987) Coalition-proof Nash equilibria. I. Concepts. J Econ Theory 42(1):1–12
Bloch F (1995) Endogenous structures of association in oligopolies. Rand J Econ 26(3):537–556
Bloch F (1996) Sequential formation of coalitions in games with externalities and fixed payoff division. Games Econ Behav 14(1):90–123
Bloch F (1997) Coalition formation in games with spillovers. In: Carraro C, Siniscalco D (eds) New directions in the economic theory of the environment. Cambridge University Press, Cambridge
Bloch F, Sánchez-Pagés S, Soubeyran R (2006) When does universal peace prevail? Secession and group formation in conflict. Econ Gov 7(1):3–29
Chwe MS-Y (1994) Farsighted Coalition Stability. J Econ Theory 63(2):299–325
Cornes R, Sandler T (1983) On Commons and Tragedies. Am Econ Rev 73(4):787–792
Esteban J, Ray D (2001) Collective action and the group size paradox. Am Polit Sci Rev 95(3):663–672
Esteban J, Sákovics J (2003) Olson vs. Coase: Coalitional worth in conflict. Theory Decis 55(4):339–357
Garfinkel M (2004a) On the stability of group formation: Managing the conflict within. Confl Manage Peace Sci 21(1):43–68
Garfinkel M (2004b) Stable alliance formation in distributional conflict. Eur J Polit Econ 20(4):829–852
Garfinkel M, Skaperdas S (2006) Economics of conflict: An overview. In: Sandler T, Hartley K (eds) Handbook of Defense Economics, vol. 2 (in press)
Hart S, Kurz M (1983) Endogenous formation of coalitions. Econometrica 51(4):1047–1064
Hillman AL, Riley JG (1989) Politically contestable rents and transfers. Econ Polit 1(1):17–39
Hume D (1740) A treatise of human nature. Reprinted (2000). Oxford University Press, Oxford
Katz E, Nitzan S, Rosenberg J (1990) Rent seeking for public goods. Public Choice 65(1):49–60
Katz E, Tokatlidu J (1996) Group competition for rents. Eur J Polit Econ 12(4):599–607
Lee S (1995) Endogenous sharing rules in collective-group rent seeking. Public Choice 85(1–2):31–44
Nitzan S (1991) Collective rent dissipation. Econ J 101(409):1522–1534
Olson M (1965) The logic of collective action. Harvard University Press, Cambridge
Ray D, Vohra R (1997) Equilibrium binding agreements. J Econ Theory 73(1):30–78
Ray D, Vohra R (2001) Coalitional power and public goods. J Polit Econ 109(6):1355–1384
Sánchez-Pagés S (2006) On the social efficiency of conflict. Econ Lett 90(1):96–101
Skaperdas S (1996) Contest success functions. Econ Theory 7(2):283–290
Skaperdas S (1998) On the formation of alliances in conflicts and contests. Public Choice 96(1–2):25–42
Stein W, Rapoport A (2004) Asymmetric two-stage group rent-seeking: Comparison of two contest structures. Public Choice 118(1–2):151–167
Tan G, Wang R (2000) Endogenous coalition formation in rivalry. Unpublished manuscript, University of British Columbia
Tullock G (1967) The welfare costs of tariffs, monopolies and theft. West Econ J 5(3):224–232
Ueda K (2002) Oligopolization in collective rent-seeking. Soc Choice Welfare 19(3):613–626
Wärneryd K (1998) Distributional conflict and jurisdictional organization. J Public Econ 69(3):435–450
Yi S-S (1997) Stable coalition structures with externalities. Games Econ Behav 20(2):201–237
Yi S-S, Shin H (2000) Endogenous formation of research coalitions with spillovers. Int J Indus Organ 18(2):229–256
Author information
Authors and Affiliations
Corresponding author
Additional information
I thank Luis Corchón, Joan Esteban, Michelle Garfinkel and József Sákovics for their comments and suggestions on the paper.
Rights and permissions
About this article
Cite this article
Sánchez-Pagés, S. Endogenous coalition formation in contests. Rev. Econ. Design 11, 139–163 (2007). https://doi.org/10.1007/s10058-007-0033-4
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10058-007-0033-4