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Investments and bargaining in a model with positive consumption externalities

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  • Cardona, Daniel
  • Rubí-Barceló, Antoni

Abstract

This paper analyzes the investment decisions of the members of a committee when a subsequent bargaining process determines the distribution of a divisible good among them. The shares allocated to investing agents generate positive consumption externalities. We show that agents’ investments improve their bargaining position. This induces rent-seeking behavior that generates a negative external effect on other investing agents. In this setting, the effects of rent-seeking counterbalance the effects of positive consumption externalities so that equilibria may be efficient or display either over- or under-investment.

Suggested Citation

  • Cardona, Daniel & Rubí-Barceló, Antoni, 2014. "Investments and bargaining in a model with positive consumption externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 78-93.
    • Handle: RePEc:eee:jeborg:v:108:y:2014:i:c:p:78-93
    DOI: 10.1016/j.jebo.2014.07.016
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    References listed on IDEAS

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    1. Daniel Cardona & Antoni Rubí-Barceló, 2013. "Investments in managerial skills and bargaining over inputs," DEA Working Papers 54, Universitat de les Illes Balears, Departament d'Economía Aplicada.
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    Cited by:

    1. Smith, Steven M., 2018. "From decentralized to centralized irrigation management," Journal of Economic Behavior & Organization, Elsevier, vol. 151(C), pages 62-87.
    2. Daniel Cardona & Antoni Rubí-Barceló, 2019. "Investments, Positive Externalities, and Majority Bargaining," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(4), pages 664-691.

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    More about this item

    Keywords

    Investments; Hold-up; Multilateral bargaining; Pareto efficiency; Externalities;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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