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Irreversible Commitments

  • Nov 1, 2007
  • Debraj Ray
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Abstract

Abstract This chapter develops a theory of coalition formation under the blocking approach when all agreements are irreversible. The concept of equilibrium binding agreements is introduced: these are agreements that cannot be blocked by other equilibrium binding agreements. The obvious circularity of this description is cut through by presuming that only subgroups of existing coalitions can deviate, thus permitting a recursive construction. It is shown that such equilibrium outcomes are often inefficient. This observation reinforces similar findings for the bargaining model studied earlier. The chapter also studies an application of the solution concept to political party formation. The last part of the chapter relaxes the restriction that only subcoalitions of existing coalitions can block proposed agreements.

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