material has been published in Journal
of Political Economy 109, 1355-1384 (2001). Copyright 2001 by The
University of Chicago.
Coalitional Power and Public Goods
Debraj Ray and Rajiv Vohra
Journal of Political Economy 109,
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We study the provision of public goods when
all agents have complete information and can write binding agreements.
This framework is in deliberate contrast to a traditional view of the free-rider
problem based on hidden information and/or voluntary provision. We focus
on coalition formation as a potential source of inefficiency. To this end,
we develop a notion of an equilibrium coalition structure, based
on the assumption that each coalition that forms does so under a rational
prediction of the society-wide coalition structure. In a simple model,
we characterize the (unique) equilibrium coalition structure. Only in some
cases does the equilibrium involve full cooperation, resulting in efficient
provision of the public good. In other cases, the equilibrium consists
of several coalitions and inefficient provision. However, the degree of
inefficiency and the number of possible coalitions are bounded.
For proofs of two assertions in the paper
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