Contractually Stable Alliances

Abstract

We analyze how different rules for exiting an alliance affect the formation of strategic alliances. We adopt the concept of contractual stability to predict the alliances that are going to emerge in the long run. We find that any asymmetric alliance structure consisting of two alliances is contractually stable under the unanimity decision rule. In addition, the grand alliance which is the efficient structure is stable. If we allow for side payments to compensate former partners, then some less efficient structures that were stable without side payments are no longer stable. Moreover, we show that the stability of alliances under the unanimity rule to exit is robust to the type of firms, myopic or farsighted. Finally, there is no contractually stable alliance structure under the simple majority decision rule.

Stable and efficient networks with neighborhood‐influenced externalities

“…When we take into account group partitioning, defining players' utilities, we can find new stable or efficient network structures in comparison with the existing results in which partitioning is not considered. Models of societies with both social and network structures are proposed by Mauleon et al (2018, 2016) introducing the concept of constitutional stability for alliances and by Cisneros‐Velarde and Bullo (2020) examining network formation when players are partitioned into clusters. Dev (2018) considers both partly endogenous and fully endogenous group identity.…”

Constrained public goods in networks

“…See alsoMauleon, Sempere-Monerris, and Vannetelbosch (2016),Mohlmeier, Rusinowska, and Tanimura (2016), andDev (2018) for related contributions on network formation and stability.3 For instance, in the star network.…”