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Inefficiency and Social Exclusion in a Coalition Formation Game

Author

Listed:
  • Okada, Akiro

    (Institute of Economic Research, Kyoto University)

  • Riedl, Arno

    (Department of Economics and Econometrics, University of Amsterdam)

Abstract

This paper reports the results of experiments involving a 3-person coalition formation game with an ultimatum bargaining character. The grand coalition was always the efficient coalition decision, whereas the values of the 2-person coalitions are varied such that they lead to an efficiency loss in the range of 6.7 up to 30 percent. Furthermore, the 2-person coalition implies social exclusion, since the not chosen member always receives a payoff of zero. Consistent with results reported in the literature on 2- person ultimatum bargaining experiments, negative reciprocity (i.e. punishment of unfair offers) plays a crucial role in decision making. The hypothesis that selfishness and anticipated negative reciprocity by proposers together with actual negative reciprocal behavior of responders lead to inefficient outcomes and social exclusion is strongly supported by the data. It turns out that a huge majority of proposers choose the inefficient and unfair 2-person coalition. Proposer-induced efficiency losses vary between 5 and 20 percent, and one sixth to almost one third of the population is excluded from participation.

Suggested Citation

  • Okada, Akiro & Riedl, Arno, 1999. "Inefficiency and Social Exclusion in a Coalition Formation Game," Economics Series 64, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:64
    as

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    File URL: https://irihs.ihs.ac.at/id/eprint/1158
    File Function: First version, 1999
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    References listed on IDEAS

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    Cited by:

    1. Holm, Håkan, 2000. "What’s in a Name? - An ethnical discrimination experiment," Working Papers 2000:3, Lund University, Department of Economics, revised 16 Apr 2001.
    2. Akira Okada & Arno Riedl, 1999. "When Culture does not matter: Experimental Evidence from Coalition Formation Ultimatum Games in Austria and Japan," Tinbergen Institute Discussion Papers 99-043/1, Tinbergen Institute.
    3. Klaus Abbink & Matthew Ellman, 2004. "The donor problem," Economics Working Papers 796, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.

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    More about this item

    Keywords

    Coalition formation; Inefficiency; Reciprocity; Social exclusion;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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