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Cover of: Investments, Positive Externalities, and Majority Bargaining
Daniel Cardona, Antoni Rubí-Barceló

Investments, Positive Externalities, and Majority Bargaining

Section: Articles
Volume 175 (2019) / Issue 4, pp. 664-691 (28)
Published 22.07.2019
DOI 10.1628/jite-2019-0034
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  • 10.1628/jite-2019-0034
This study analyzes the welfare implications of requiring either unanimity or a simple majority in negotiations to distribute a budget among three agents who could previously invest to generate positive consumption externalities for others. This complements Cardona and Rubí-Barceló (2014), who consider only the unanimity case. We show that reducing the majority requirement reduces the profitability of investments, and consequently alleviates overinvestment, which is predominant under unanimous bargaining. Nevertheless, requiring a simple majority reduces the aggregate surplus attained in the bargaining stage. Therefore, the relative performance of the bargaining rules is uncertain. We show how the size of consumption externalities affects this performance.