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Title :Essays in the formation of coalitions in the presence of multilateral externalities
Creator :Chatzigiatroudakis, Ioannis
Contributor :Zacharias, Eleftherios (Επιβλέπων καθηγητής)
Athens University of Economics and Business, Department of Economics (Degree granting institution)
Type :Text
Extent :134p.
Language :en
Abstract :Over the past few decades we have witnessed firms or countries come together and form coalitions. Such examples include the Renault-Nissan Alliance and the EU. Whether in business or international relations, the circumstances in which a coalition may form are the same: when the coalition members obtain benefits that they would not have been able to obtain on their own. For instance, the coalition between Renault and Nissan has allowed for cost-sharing agreements as well as R&D spillovers between the two firms.1 As far as the EU is concerned, the formation of such a coalition is expected to lead to greater efficiency, since the externalities can be fully realized and thus managed properly. Additional gains stem from the free goods, capital and labor mobility. Moreover, the economies of scale that arise can be exploited, the availability of resources is higher and so is insurance, due to risk pooling. In this thesis, we consider a set of economic agents (districts, regions or countries) that choose whether to cooperate or not when the motivation behind the formation of coalitions comes from the exploitation of externalities. To be more specific, we assume that each agent has a discrete project that generates a local benefit for that agent as well as externalities for the rest of the agents. When the agents act separately, each one of them decides on undertaking its project by considering only the local benefit. If the project is funded, its externalities occur and affect the other agents, but are not taken into consideration while evaluating the project. On the other hand, when the agents cooperate and form coalitions, they take into consideration the intra-coalition externalities of their projects. As a result, the funded projects might not be the same in the two cases. The first chapter focuses on the coalition formation when non-negative externalities arise from discrete regional projects, such as infrastructure facilities. In the spirit of Burbidge et al. (1997), we suppose that the regions share the benefits that emerge from their cooperation by adopting the symmetric Nash bargaining solution. Furthermore, as it is common in many institutional environments, we assume that the coalition formation occurs according to a rule that allows for exclusivity in membership. For instance, according to the Maastricht Treaty, the consent of the current Member States is required in order for a candidate member state to join the EU. In order to achieve a sharper prediction of the stability of the coalition structures, we allow deviations not only by a single region, but also by a group of regions. For this reason, we restrict our attention to the equilibrium concepts that can accommodate for such deviations and apply the notion of the Strong Nash equilibrium, originally introduced by Aumann (1959). We find that a coalition might subsidize the participation of some of its members and we show that in order for the grand coalition to emerge in equilibrium, the gains from the full cooperation should be sufficiently high. Another important feature of this setting is that the set of the projects that are undertaken when the regions cooperate depends partially on their local benefits. To some extent, this is consistent with the idea expressed in Oates (1972) - and captured (among others) by Lockwood (2002) - that when the regions coordinate, the decision about which projects to fund is less responsive to regional preferences. We further find that the strength of the externalities affects crucially, but not entirely, the degree of "universalism" in the economy. When the externalities are strong, the equilibrium outcome is closer to uniformity than it is when the externalities are low. Finally yet importantly, we show that secession may never be more efficient than the full cooperation of the regions, even when the projects that are funded under the two arrangements are the same. The second chapter of this thesis examines the conditions under which the countries are willing to form coalitions or sign agreements, such as international environmental agreements (IEAs), in order to deal with environmental externalities that arise from the economic activity. We extend the analysis of the previous chapter to include the case when the project externalities are negative or even mixed. Furthermore, we compare the sharing rule that we presented in the first chapter with the optimal sharing scheme suggested by Carraro et al. (2006), Eyckmans and Finus (2009), Fuentes-Albero and Rubio (2010), McGinty (2007), Nagashima et al. (2009) and Weikard (2009). Also, rather than assume that coalition formation occurs in accordance with some particular rule, we follow Hart and Kurz (1983) and do not discuss the process according to which the individual countries form coalitions. We suppose that any such process must eventually lead to a coalition structure from which no country or group of countries can improve upon their position by deviating. Specifically, our focus is on coalition structures that have the core property. We adopt the γ-core as a notion of coalition stability and assume that when one or more countries leave a coalition, the remaining members continue to cooperate. To the best of our knowledge, the application of the δ- core has yet to be explored in the context of IEAs. The application of this particular notion of the core allows for the coexistence of multiple non-crossing coalitions. This feature of our model is especially useful for the study of IEAs that deal with environmental issues at the regional rather than the global level. For instance, the UNEP Regional Seas Programmes address the protection of marine and coastal environment at a regional level: only the countries in the Wider Caribbean Region have ratified the Cartagena Convention, while only those with coastlines in the Mediterranean Sea have signed the Barcelona Convention etc. In addition, we compare this notion of stability to the notion of the γ- core used by Chander and Tulkens (1995 and 1997). In contrast to theδ- core, under the γ-core notion of coalition stability whenever one or more countries leave a coalition they expect a complete breakdown in the cooperation of the non-deviating members. We show that in comparison to the γ-core, the conditions for the δ- core are more restrictive. To our surprise, this does not imply that when an economy has the payoffs of the grand coalition in the δ- core, then they are also in the γ-core. These results are consistent with both of the sharing schemes that we consider. We further show that all the countries form a single coalition if and only if the benefits from the cooperation are high enough. Interestingly, we find that in the case when the payoffs of the Nash bargaining solution are sufficient for the full cooperation to prevail, the optimal sharing scheme might not be able to support the formation of the grand coalition
Subject :Coalition formation
Endogenous participation rates
Endogenous formation of coalitions
International Environmental Agreements (IEAs)
Date :30-09-2017
Licence :

File: Chatzigiatroudakis_2017.pdf

Type: application/pdf