Hanging Together or Being Hung Separately: The Strategic Power of Coalitions where Bargaining Occurs with Incomplete Information

32 Pages Posted: 18 Dec 2012

See all articles by Kai A. Konrad

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Thomas R. Cusack

Wissenschaftszentrum Berlin für Sozialforschung (WZB)

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Date Written: December 14, 2012

Abstract

What is the strategic role of membership in an intergovernmental group with unanimity requirements if the group negotiates with an external player in a setting with incomplete information? Being in such a group has a strategic effect compared to negotiating as a stand-alone player and reduces the demands of the outside player: being in a group lends additional bargaining power. Negotiating as a group may also cause more inefficiencies due to bargaining failure, and this may harm also the intergovernmental group. We uncover the role of preference alignment and preference independence between members of the coalition group for equilibrium payoffs and welfare effects. In this analysis we also distinguishing between coalition groups with and without side payments. Overall, coalition groups tend to perform well for the members of the coalition group in comparison to fully decentralized negotiations, particularly if the objectives of the members of the coalition group are not always perfectly aligned.

Keywords: bargaining, incomplete information, coalitions, groups, strategic bargaining power

JEL Classification: F51, F53, F59

Suggested Citation

Konrad, Kai A. and Cusack, Thomas R., Hanging Together or Being Hung Separately: The Strategic Power of Coalitions where Bargaining Occurs with Incomplete Information (December 14, 2012). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2012-13, Available at SSRN: https://ssrn.com/abstract=2190349 or http://dx.doi.org/10.2139/ssrn.2190349

Kai A. Konrad (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

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Centre for Economic Policy Research (CEPR)

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IZA Institute of Labor Economics

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Thomas R. Cusack

Wissenschaftszentrum Berlin für Sozialforschung (WZB) ( email )

Institution, States, and Markets Working Group
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D-10785 Berlin
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