Efficiency in Face of Externalities When Binding Hierarchical Agreements are Possible
16 Pages Posted: 23 Apr 2011 Last revised: 21 May 2011
Date Written: May 19, 2011
A formal framework for the treatment of hierarchical coalition formation and hierarchical agreements under both the bargaining and blocking approaches to coalition formation is introduced, and some first positive results on the possibility of full agreement and the efficiency of hierarchical agreements in face of externalities are given.
In particular, it is shown that the possibility of hierarchical agreements can lead to efficient outcomes in the standard Cournot oligopoly example and a certain public good example that can be seen as being relevant in the study of International Environmental Agreements.
Keywords: coalition formation, binding agreements, externalities, Cournot oligopoly
JEL Classification: C71, C78
Suggested Citation: Suggested Citation