Do coalitions matter in designing institutions?

Korpela, V., Lombardi, M. and Vartiainen, H. (2020) Do coalitions matter in designing institutions? Journal of Economic Theory, 185, 104953. (doi:10.1016/j.jet.2019.104953)

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Abstract

In this paper, we re-examine the classical questions of implementation theory under complete information in a setting where coalitions are fundamental behavioral units, and the outcomes of their interactions are predicted by applying the solution concept of the core. The planner's exercise includes designing a code of rights that specifies the collection of coalitions having the right to block one outcome by moving to another. A code of individual rights is a code of rights in which only unit coalitions may have blocking powers. We provide the necessary and sufficient conditions for implementation (under core equilibria) by codes of rights, as well as by codes of individual rights. We also show that these two modes of implementation are not equivalent. The results are robust and extend to alternative notions of core, such as an externally stable core. Therefore, coalitions are shown to bring value added to institutional design. The characterization results address the limitations that restrict the relevance of the existing implementation theory.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Lombardi, Dr Michele
Authors: Korpela, V., Lombardi, M., and Vartiainen, H.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Economic Theory
Publisher:Elsevier
ISSN:0022-0531
ISSN (Online):1095-7235
Published Online:22 October 2019
Copyright Holders:Copyright © 2019 Elsevier
First Published:First published in Journal of Economic Theory 185:104953
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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