Strategic Behavior and the Environment > Vol 8 > Issue 2

The Role of Payoff Inequality in the Formation of Coalitions to Provide a Public Good

David M. McEvoy, Department of Economics, Appalachian State University, USA, mcevoydm@appstate.edu John K. Stranlund, Department of Resource Economics, University of Massachusetts Amherst, USA, stranlund@resecon.umass.edu
 
Suggested Citation
David M. McEvoy and John K. Stranlund (2020), "The Role of Payoff Inequality in the Formation of Coalitions to Provide a Public Good", Strategic Behavior and the Environment: Vol. 8: No. 2, pp 99-130. http://dx.doi.org/10.1561/102.00000094

Publication Date: 25 Mar 2020
© 2020 D. M. McEvoy and J. K. Stranlund
 
Subjects
Environmental Economics,  Public Economics,  Economic Theory: Game Theory,  Behavioral Decision Making,  Game theory,  International relations,  Collective action
 
Keywords
JEL Codes: C72C92H41Q50
Self-enforcing agreementsinequality aversioncoalitionsexperimentspublic goods
 

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In this article:
Introduction
The Model
Experimental Design
Results
Conclusion
References

Abstract

We explore the formation of coalitions to provide a public good when some players are averse to payoff inequality between coalition members and non-members. A model is presented to demonstrate how inequality-averse preferences could cause players to deliberately block profitable but inequitable coalitions from forming, and how the likelihood of such blocks is affected by the magnitude of payoff inequality. We then empirically examine coalition formation rates using laboratory experiments. Our results show that profitable coalitions are less likely to form the bigger the gap in payoffs between members and free-riding non-members. The experimental design allows us to tease out potentially confounding effects between the level of inequality and the minimum number of players required to make the coalition profitable. As predicted, controlling for the size of the participation threshold, we find that coalition formation rates fall as the payoff gap between members and non-members is increased.

DOI:10.1561/102.00000094