sequential formation of coalitions in games with externalities and fixed payoff division this paper analyzes a sequential game of coalition formation when the division of the coalitional surplus is fixed and the payoffs are defined relative to the whole coalition structure gains from cooperation are represented by a valuation which maps coalition structures into payoff vectors i show that any core stable coalition structure can be attained as a stationary perfect equilibrium of the game if stationary perfect equilibria may fail to exist in general games a simple condition is provided under which they exist in symmetric games furthermore symmetric stationary perfect equilibria of symmetric games generate a coalition structure which is generically unique up to a permutation of the players a general method for the characterization of equilibria in symmetric games is proposed and applied to the formation of cartels in oligopolies and coalitions in symmetric majority games journal of economic literatureclassification numbers c78 c71 1996 academic press inc

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

preferential trading arrangements as strategic positioning abstract we analyze a three country model of trade negotiations in which countries can form bilateral free trade areas bilateral customs unions or a trilateral preferential trading arrangement and can continue negotiating after reaching an agreement in contrast to the literature on multilateral bargaining the set of agreements can form a nonpartitional network while in contrast to the network literature players can reach multilateral agreements patient enough countries only reach bilateral agreements if insiders gain more than outsiders which allows them to manipulate the status quo in subsequent negotiations however a hub and spoke pattern may then emerge and insiders then dissipate the advantages of strategic positioning we also use variants on the model to explain why a us commitment not to bargain bilaterally sustained progress at gatt negotiations and the rarity of open access preferential trading arrangements

endogenous formation of coalitions with composite goods abstract we construct a model of endogenous formation of coalitions when three goods are necessary for a composite good and composite goods are substitutes for each other this analysis extends economides and salop s journal of industrial economics xl 1992 105 model of composite goods where two goods are necessary we analyze the welfare implications of coalition structure and investigate which coalition structure leads to the highest social welfare the paper investigates whether the most desirable coalition structure represents an equilibrium and provides a sufficient condition for the socially efficient coalition structure to be a stable nash coalition structure

stocks flows and some exchange rate dynamics for the currency substitution model abstract the paper argues that the treatment of stocks and flows in portfolio balance models of exchange rate determination is inadequate and that this hampers the analysis of exchange rate dynamics a proposed resolution is reworked into the currency substitution model in addition to providing explicit solutions for the spot rate of exchange depreciation under different expectational hypotheses an attempt is made to clarify the dynamic properties of the model inter alia it is shown how exchange rate overshooting is possible without having to assume market frictions how a deteriorating current account deficit can coexist with an appreciating exchange rate and more generally how portfolio induced jumps in the exchange rate are linked to balance of payments flow influences on the evolution of the exchange rate

endogenous formation of competing partnerships with moral hazard abstract we analyze the formation of competing partnerships as a sequential game with moral hazard within coalitions in a linear cournot model we show that when moral hazard is very severe no partnerships will form however when moral hazard is not too severe the coalition structure may be more concentrated than it is in the absence of moral hazard concerning industry profits in the absence of moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome but moral hazard may be responsible for an inefficiency of opposite sign

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

cooperative and noncooperative r d in an oligopoly with spillovers this paper examines the positive and normative effects of cooperative r d whereby member firms commit themselves to the joint profit maximizing level of r d in a precompetitive stage but remain fierce competitors in the product market vis a vis noncooperative r d socially first best r d and socially second best r d in the presence of sufficiently large r d spillovers neither noncooperative nor cooperative equilibria achieve even second best r d levels in the absence of spillover effects however while the cooperative r d level remains socially insufficient the noncooperative level may overshoot first and second best levels of r d copyright 1992 by american economic association

sharing a fish stock when distribution and harvest costs are density dependent we studied cooperative and competitive solutions for managing a trans boundary fish stock that has a stock size dependent distribution and harvesting costs using norwegian spring spawning nss herring clupea harengus as a case study this is among the first studies to investigate the effect of a dynamic distribution in a partition function game framework i e including externalities the special feature of nss herring is that it comes under the sole ownership of norway when the stock size is sufficiently low the three players in our game are differentiated by stock ownership cost per unit effort and stock elasticity of harvest we find that cost asymmetry improves the likelihood of forming a stable grand coalition as harvesting load can be assigned to each fishing zone according to a player s relative cost level and the density of fish a dynamic distribution increases the bargaining power of norway because of her ability to control both the total stock and the stock shares in different zones especially during the stock transition years however the bargaining power of norway may disappear if her cost of harvesting exceeds that of the other players this loss of bargaining power can take on two forms first a dynamic distribution may encourage a minor player to free ride because norway needing a coalition partner to improve her cost effectiveness would be less inclined to retaliate as retaliation hurts her ally as much as the free rider second in a stable grand coalition norway is not guaranteed to receive an allocation of benefit shares in proportion to not to say in excess of her stock ownership at the current stock condition the strategy where norway reduces stock abundance below the level where the stock becomes non migratory is found attractive only if the discounting rate is sufficiently high

endogenous formation of research coalitions with spillovers abstract we examine the endogenous formation of research coalitions with high spillovers among symmetric firms members of a research coalition set their r and d investments in order to maximize the aggregate profits of members of their coalition the exclusive membership rule supports a more concentrated coalition structure and thus leads to higher industry r and d investments for high spillovers than the open membership rule does however due to free riding problems the grand research coalition which is the socially efficient outcome is rarely an equilibrium outcome under either rule our results suggest that government subsidies to research consortia for basic research with high spillovers can improve social welfare by encouraging wider participation to a research consortium that is by alleviating free rider problems in coalition formation from a more theoretical viewpoint our results on stable coalition structures are applicable to a wide variety of economic coalitions with positive externalities

stable coalition structures with open membership and asymmetric firms i study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the market according to previous analyses only the grand coalition forms at the nash equilibrium of such games i show that this result hinges on the assumption of symmetric firms i therefore introduce asymmetric firms in a game where only two associations can form i demonstrate that there exists a coalition proof nash equilibrium coalition structure in this game and that when the equilibrium involves two associations all the members of an association have a higher taste for this association than all nonmembers do journal of economic literature classification numbers c70 c72 l13

social ties within school classes the roles of gender ethnicity and having older siblings in this paper we identify the lines along which social ties between high school teenagers are primarily formed to this end we introduce interaction weights between pupils in the same school class that are a function of exogenous individual background characteristics such as gender ethnicity and having older siblings the resulting model with endogenous interactions and school specific fixed effects is estimated using data from the dutch national school youth survey nsys a survey in which in principle all pupils in a sampled class are interviewed by combining the 1992 1996 1999 and 2001 nsys data we are able to identify trends in social relationships of teenagers we find that the roles that gender and ethnicity play in how teenagers interact varies strongly across different types of behaviour for example going out shows strong within ethnicity interactions while expenditures on cell phones and on clothing exhibit mainly between girls interactions having older siblings has a minor effect on within school class social interactions there is weak evidence of decreased ethnic segregation within school classes during the decade considered

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

r d networks we develop a model of strategic networks that captures two distinctive features of interfirm collaboration bilateral agreements and nonexclusive relationships our analysis highlights the relationship between market competition firms incentives to invest in r d and the architecture of collaboration networks in the absence of firm rivalry the complete network where each firm collaborates with all others is uniquely stable industry profit maximizing and efficient by contrast under strong market rivalry the complete network is stable but intermediate levels of collaboration and asymmetric networks are more attractive from a collective viewpoint this suggests that competing firms may have excessive incentives to form collaborative links

equilibrium and optimal size of a research joint venture in an oligopoly with spillovers this paper analyzes a simple oligopoly model with information spillovers firms spend on r d to affect their costs of production the main finding is that depending on the magnitude of the spillover the market may not provide enough incentives for the optimum degree of cooperation to take place it is shown that the equilibrium size of a research joint venture is usually less than the optimum size which requires all firms to participate in the research joint venture the policy implications of this result are that there should be encouragement for firms competing in high technology industries to form industry wide cooperative agreements copyright 1995 by blackwell publishing ltd

endogenous formation of coalitions the formation of coalitions is a fundamental problem in game theory by a coalition is meant a group of players e g economic or political agents which decide to act together as one unit relative to the rest of the players this includes the instances of syndicates unions cartels blocks political parties parliamentary coalitions etc we would like to emphasize that forming a coalition does not eliminate the individual players as decision makers in all interactions with the other players coalition members act as one unit it may be useful to think of a representative agent taking their place 2 however this arrangement will continue only as long as each player finds it desirable to act this way further bargaining occurs among the members of each coalition on how to divide what they obtained together thus the existence of coalitions implies that the interactions among the players will be conducted on two levels first among the coalitions and second within each coalition most of the existing models in economics and game theory assume that the coalition structure is given exogenously instead we try here to obtain it as an endogenous outcome of our model namely we want to be able to predict which coalitions will in fact form in each given situation 3 our theory combines two kinds of game theoretic concepts value and stability the basic idea is first to evaluate the players prospects in the various coalition structures and then based on these values to find which ones are stable we will call this value coalition structure value or cs value for short the reason we are considering coalition structures i e partitions of the set of players into disjoint coalitions rather than just coalitions is that in general players may find it to their advantage to join forces in some situations and to act separately in others all depending on the way the other participants are organized this implies that both the value and the stability concepts should depend on the entire coalition structure the cs value we analyze in this paper was first developed by owen 7

non cooperative networks in oligopolies in an oligopoly prior to competing in the market firms have an opportunity to pick up externalities from other firms by setting links the links formation defines an industrial network we study the incentives for firms to form links and the effect of this links formation on the architecture of the resulting networks our analysis shows that equilibrium networks differ dramatically depending on the nature of market competition cournot or bertrand more precisely in the case of cournot oligopoly we should expect to see networks in which each firm obtains access to externalities of either all firms or no firm in the case of bertrand oligopoly we should expect to see networks in which one firm derives benefits from externalities of all other firms while the latter get no externality we also present some results on the architecture of socially efficient networks

uncertainty networks and real options abstract two pervasive features of industries experiencing rapid technological progress are uncertainty with regard to the technological feasibility and marketabilility of an innovation and networks the dense web of research alliances and joint ventures linking firms to each other this paper connects the two disparate phenomena using the notion of real options it visualizes firms as nodes and the links connecting them as call options that give each pair of interlinked firms the right but not the obligation to sink additional resources into a project at some future date conditional on favorable technical market information the formation of networks is endogenous as firms establish links with others by appraising their value using option pricing methods our model explains the following why networks are particularly ubiquitous in industries that are subject to high uncertainty why networks often display an interconnected hubs and spokes architecture why small or peripheral spoke firms often sink resources into relatively higher risk higher return investment projects and those too with only large or hub firms and why so many research alliances are continuously formed and dissolved our paper also outlines the conditions under which ex ante symmetric firms end up ex post forming complex asymmetric networks

downstream research joint venture with upstream market power in a vertically related industry we examine the downstream firms incentives to invest in cost reducing research and development r d and to form a research joint venture rjv under two alternative structures of input supply exclusive vertical relations and a single supplier in contrast to the hold up argument in which downstream firms invest non cooperatively and spillovers are low r d investments are higher under a single supplier than under competing vertical chains downstream firms incentives to form a rjv are also stronger in the former case than they are in the latter we identify conditions under which an rjv is beneficial for society integrated innovation and competition policies are also discussed

stocks flows and market equilibrium in neoclassical monetary growth models abstract the treatment of short run monetary equilibrium in neoclassical monetary growth theory has been criticized as one of asset market equilibrium that leaves the status of real flows unclear the paper shows this dichotomy to be the result of a stock flow confusion a resolution is attempted on the basis of which it is shown that the output market is in fact continuously equilibrated and that neoclassical models can be employed for short run analysis

short run dynamics in models of money and growth originating with james tobin s initial treatment of money as a second asset in the solow one sector growth model the subject of money and growth has received a great deal of attention in the recent literature tobin s emphasis on portfolio balance to determine the equilibrium of the model provides a useful framework for the discussion of the development of two opposing schools of thought among recent writers on the subject of money and growth the neoclassical approach follows tobin in his emphasis on portfolio balance and includes contributions by miguel sidrauski and harry johnson among others a cogent and comprehensive statement of the neoclassical viewpoint can be found in the excellent survey by david levhari and don patinkin the second approach the keynes wicksell approach as expounded by jerome stein in particular and also including contributions by hugh rose and keizo nagatani faults the neoclassical model on two basic and related points they are the implications of the model for the dynamics of price change and the lack of independent savings and investment decisions the neoclassical approach is characterized by the assumption that desired per capita real balances are always held prices must adjust instantaneously to assure portfolio balance a given rate of expansion of the nominal money stock combined with the exogenously given rate of population growth serves to determine the equilibrium rate of inflation consistent with asset equilibrium the division of assets between money and physical capital is thereby determined and there need be no specification of an independent investment function all physical savings are instantaneously channelled into capital accumulation and the desired capital stock is always held the long run properties of the neoclassical model allow for the coexistence of nonzero steady state inflation and goods market equilibrium by specifying that excess demand for goods causes a departure from the steady state rate of inflation but is not a necessary condition for a nonzero inflation rate at any point in time it is contended that in a dynamic world there are two forces operating to drive the price level excess demand for goods and inflationary expectations in steady state excess demand is zero actual inflation equals expected inflation not necessarily zero and the possibility of nonzero steady queen s university this paper was written while i was a graduate student at the university of chicago my understanding of the issues has been greatly improved by many discussions with rudiger dornbusch stanley fischer and michael mussa i also wish to thank members of workshops at the university of chicago university of rochester and york university and to participants in the chicago symposium on trade growth and the balance of payments university of chicago december 1970 for helpful comments on an earlier version of this paper jerome stein george borts and an anonymous referee provided very useful comments for which i am most grateful of course i am responsible for any remaining errors financial support from the canada council is gratefully acknowledged i a puzzling result of tobin s initial treatment is that the introduction of money into the barter model lowered the capital intensity and output per capita i have recently tried to analyze this seemingly paradoxical result elsewhere see purvis

incentives to diffuse advanced abatement technology under the formation of international environmental agreements we analyse the incentives for polluting firms to diffuse and adopt advanced abatement technology in a framework in which governments negotiate an international environmental agreement these incentives crucially depend on whether the underlying environmental policy instrument is an emission tax or an emission quota the results for the international setting fundamentally differ from those for the national setting that have been elaborated upon in the earlier literature in particular equilibrium diffusion and adoption of advanced abatement technology are not necessarily optimal under the tax regime and may be even lower than those under the quota regime

stable coalition structures with externalities this paper argues that the sign of external effects of coalition formation provides a useful organizing principle in examining economic coalitions in many interesting economic games coalition formation creates either negatie externalities or posi tie externalities for nonmembers examples of negative externalities are research coalitions and customs unions examples of positive externalities include output cartels and public goods coalitions i characterize and compare stable coalition structures under the following three rules of coalition formation the open

strategic groups and rent dissipation we consider a rent seeking contest in which players can form strategic groups before expending their outlays we examine the profitability of endogenous group formation and the effect of such group formation on rent dissipation we show the following when just one strategic group is formed in equilibrium group formation is beneficial both to the group members and to the nonmembers and rent dissipation is smaller than with usual individual rent seeking however when more than two strategic groups are formed in equilibrium group formation is never profitable to any players and rent dissipation is greater than with individual rent seeking jel