Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2017/11: Coalition Formation with Externalities: The Case of the Northeast Atlantic Mackerel Fishery in a Pre and Post Brexit Context

Evangelos Toumasatos () and Stein Ivar Steinshamn ()
Additional contact information
Evangelos Toumasatos: SNF - Centre for Applied Research at NHH, Postal: SNF - Centre for Applied Research at NHH , Helleveien 30, N-5045 Bergen, Norway
Stein Ivar Steinshamn: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: In this paper we apply the so-called partition function approach to study coalition formation in the North-east Atlantic mackerel fishery in the presence of externalities. Atlantic mackerel is mainly exploited by the European Union (EU), the United Kingdom (UK), Norway, the Faroe Islands and Iceland. Two games are considered. First, a four-player game where the UK is still a member of the EU. Second, a five-player game where the UK is no longer a member of the union. Each game is modelled in two stages. In the first stage, players form coalitions following a predefined set of rules. In the second stage, given the coalition structure that has been formed, each coalition choose the economic strategy that maximises its own net present value of the fishery given the behaviour of the other coalitions. The game is solved using backward induction to obtain the set of Nash equilibria coalition structures in pure strategies, if any. We find out that the current management regime is among the stable coalition structures in all eight scenarios of the four-player game, but in only one case of the five-player game. In addition, stability in the five-player game is sensitive to the growth function applied and the magnitude of the stock elasticity parameter.

Keywords: Mackerel dispute; straddling fish stock; brexit; games in partition function form; externalities; coalition formation; coalition structure stability

JEL-codes: C71; C72; Q22; Q57

48 pages, October 18, 2017

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