Arbeitspapier

Contracting with Externalities and Outside Options

This paper proposes a model of multilateral contracting where players are engaged in two parallel interactions: they dynamically form coalitions and play a repeated normal form game with temporary and permanent decisions. This formulation encompasses many economic models with externalities and outside options. We show that when outside options are pure (i.e. independent of the actions of other players), there exists a Markov Perfect equilibrium resulting in efficient outcomes when players become perfectly patient. If outside options are not pure, all Markov perfect equilibria may be inefficient. The distribution of coalitional gains and the dynamics of coalition formation are characterized in four illustrative applications.

Language
Englisch

Bibliographic citation
Series: Nota di Lavoro ; No. 78.2004

Classification
Wirtschaft
Cooperative Games
Noncooperative Games
Bargaining Theory; Matching Theory
Externalities
Subject
Outside options
Externalities
Coalitional bargaining
Verhandlungstheorie
Vertragstheorie
Koalition
Theorie
Normalformspiel

Event
Geistige Schöpfung
(who)
Bloch, Francis
Gomes, Armando
Event
Veröffentlichung
(who)
Fondazione Eni Enrico Mattei (FEEM)
(where)
Milano
(when)
2004

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Bloch, Francis
  • Gomes, Armando
  • Fondazione Eni Enrico Mattei (FEEM)

Time of origin

  • 2004

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