Abstract
Abstract This article studies coalition formation among individuals who differ in productivity. We consider egalitarian societies in which coalitions split their surplus equally and individualistic societies in which coalitions split their surplus according to productivity. Preferences of coalition members depend on their material pay-offs, but are also influenced by relative pay-off concerns. The stable partitions in both egalitarian and individualistic societies are segregated, i.e., individuals with adjacent productivities form coalitions. If some individuals are not part of a productive coalition, then these are the least productive ones for egalitarian societies and the most productive ones for individualistic societies.
Highlights
The exercise of power has been pervasive to every society albeit being present in different forms
This common desire leads into a “social contract” which bans the coercive force in favor of the enforcement power of institutions which ensure social norms and property rights
We model the importance of the relative position in a coalition by the intragroup relative payoff
Summary
The exercise of power has been pervasive to every society albeit being present in different forms. In the setting of this paper, the Myopic Stable Set is the minimal set of partitions such that (i) from any partition in the set, no sequence of myopic coalitional improvements leaves the set and (ii) for any given initial partition, there is a sequence of myopic coalitional improvements which leads to an element in the set For both egalitarian and individualistic societies, we provide a full characterization of the Core and the Myopic Stable Set and show that both solution concepts coincide. The results for individualistic societies rely on the fact that in individualistic societies, the individuals with the lowest productivity are very attractive as coalition members, since they do not affect the material payoffs but yield a higher relative payoff to other members of the coalition Since these incentives are mutual, groups of individuals with low productivity will form. The most productive individuals are always part of a productive coalition, while this might not be the case for individualistic societies
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
