Group Stability of Hierarchies in Games With Spillovers

22 Pages Posted: 24 Nov 2006

See all articles by Sergio Currarini

Sergio Currarini

University of Leicester - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Date Written: March 2006

Abstract

In a recent paper, Demange (2004) has shown that hierarchical organizations can guarantee the existence of stable cooperative outcomes by appropriately allocating the blocking power to a subset of coalitions, the "teams". This paper extends the analysis of Demange to cooperative problems with spillovers. We show that if blocking coalitions have "pessimistic expectations" on the reaction of outsiders, in all cooperative problems there exists an allocation which is blocked by no team. We also study the case of "passive expectations", for which the same result holds in all games with negative spillovers, while stable allocations may fail to exist in games with positive spillovers. In the latter class of games, however, hierarchies are shown to be the most stable organizational forms.

Keywords: Hierarchies, Coalitions, Stability, Spillovers, Cooperative Games, Networks

JEL Classification: C7, C71

Suggested Citation

Currarini, Sergio, Group Stability of Hierarchies in Games With Spillovers (March 2006). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 14/06, Available at SSRN: https://ssrn.com/abstract=946886 or http://dx.doi.org/10.2139/ssrn.946886

Sergio Currarini (Contact Author)

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

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