The Formation of Rank Structure Through Self Interested Interactions

30 Pages Posted: 10 Feb 2017

See all articles by Saish Nevrekar

Saish Nevrekar

Universidad Carlos III de Madrid

Date Written: February 15, 2015

Abstract

I study the process of coalition formation when competing agents benefit by cooperating with each other out of self-interest. The payoff to agents depends on their relative skill (rank). Agents benefit from mutual interactions - where agreements are non-binding - that leads to the formation of coalitions. Assuming complete information, I develop an algorithm that segregates agents into coalitions depending on the strategies they play. I prove that a Coalitional Equilibrium does not necessarily exist in this economy. For the case of 2-Rank Stable Economy: an economy where no agent’s rank can increase by two or more ranks, I show that the rank ordering will not change due to mutual interactions; it will be identical to the initial rank ordering. For the general case of m-Rank Stable Economy, where rank ordering could change, I establish the necessary and sufficient conditions for agents to increase their ranks.

Keywords: Coalition formation, Non-binding agreements

JEL Classification: C72, C78, D01, D70

Suggested Citation

Nevrekar, Saish, The Formation of Rank Structure Through Self Interested Interactions (February 15, 2015). Available at SSRN: https://ssrn.com/abstract=2517293 or http://dx.doi.org/10.2139/ssrn.2517293

Saish Nevrekar (Contact Author)

Universidad Carlos III de Madrid ( email )

Calle Madrid 126
Getafe, 28903
Spain

HOME PAGE: http://saishnevrekar.com

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