Marginal Productivity and Coalition Formation with Distributive Norms
This paper analyzes coalition formation under constant, decreasing, and increasing marginal productivity when the total surplus jointly produced by individuals with heterogeneous abilities can only be distributed to its members in egalitarian or meritocratic ways. When marginal productivity is decreasing or constant, the results are simple, as no coalition with multiple members is included in a stable coalition structure when marginal productivity is decreasing, whereas individuals are indifferent to which meritocratic coalition they belong, including singletons, in the case of constant marginal productivity. In contrast, if marginal productivity is increasing, stable structures differ considerably from those obtained by other models. A procedure to identify stable structures is proposed, finding that multiple egalitarian coalitions can exist, each of which is always consecutive, but there is, at most, only one meritocratic coalition, which may or may not be consecutive, in stable structures. Moreover, the grand egalitarian coalition is only stable under certain conditions, whereas the grand meritocratic coalition is always stable.