Tournaments, Coalitions, and Truthfulness

Abstract:     
We examine the role of coalitions and their members' private information honesty-cheating strategies within a standard industrial politics tournament model. It is first established that honesty supports a sequential equilibrium in both two- and three-member coalitions. Second, a Lazear-type (1989) model (identical risk averse agents condition their optimal choices of effort and sabotage on a prize set by a principal) is extended to allow for coalitions. Using a sequential coalition formation model with a coalition externality (larger coalitions make self-enforcing sabotage and synergy strategies more effective), coalition members coordinate their sabotage-synergy activities. Our main result is a sufficient condition for the existence of the equilibrium coalition structure: if the coalitional externality is sufficiently large, a subcoalition obtains, but if it is sufficiently small the grand coalition obtains, in which case, industrial politics vanish. Moreover, the received tournament model will never be predicted. These results are justified on efficiency grounds.

Number of Pages in PDF File: 36

Keywords: Noncooperative Games, Organizational Behavior, Wage Level and Structure, Contracts

JEL Classification: C72, D23, J31, J41

working papers series