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A New Class of Welfare Maximizing Stable Sharing Rules for Partition Function Games with Externalities

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  • Eyckmans, Johan
  • Finus, Michael
  • Mallozziy, Lina

Abstract

We propose a class of sharing rules for the distribution of the gains from cooperation for partition function games with externalities. We show that this class of sharing rules is characterized by three axioms: coalitional efficiency, additivity and anonimity which are adapted to the context of partition function games. The sharing rules stabilize, in the sense of d'Aspremont et al. (1983), the coalition which generates the highest global welfare among the set of potentially internally stable coalitions. The new class of sharing rules is particularly powerful for economic problems that are characterized by positive externalities from coalition formation (outsiders benefit from the expansion of the coalition) and which therefore often suffer from free-riding.

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Bibliographic Info

Paper provided by University of Bath, Department of Economics in its series Department of Economics Working Papers with number 32513.

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Date of creation: Oct 2012
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Handle: RePEc:eid:wpaper:32513

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Keywords: resources; economic growth; renewable energy; natural; environmental policy;

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  1. Hans-Peter Weikard & Michael Finus & Juan-Carlos Altamirano-Cabrera, 2006. "The impact of surplus sharing on the stability of international climate agreements," Oxford Economic Papers, Oxford University Press, vol. 58(2), pages 209-232, April.
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  6. Matthew McGinty, 2007. "International environmental agreements among asymmetric nations," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 45-62, January.
  7. Montero, M.P., 1999. "Coalition Formation in Games with Externalities," Discussion Paper, Tilburg University, Center for Economic Research 1999-121, Tilburg University, Center for Economic Research.
  8. Debraj Ray & Rajiv Vohra, 1998. "A Theory of Endogenous Coalition Structures," Working Papers 98-1, Brown University, Department of Economics, revised Jan 1998.
  9. Macho-Stadler, Ines & Perez-Castrillo, David & Wettstein, David, 2007. "Sharing the surplus: An extension of the Shapley value for environments with externalities," Journal of Economic Theory, Elsevier, vol. 135(1), pages 339-356, July.
  10. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(2), pages 185-99, May.
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  12. Debraj Ray & Rajiv Vohra, 2001. "Coalitional Power and Public Goods," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(6), pages 1355-1384, December.
  13. Yi, Sang-Seung & Shin, Hyukseung, 2000. "Endogenous formation of research coalitions with spillovers," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 18(2), pages 229-256, February.
  14. René Brink & Yukihiko Funaki, 2009. "Axiomatizations of a Class of Equal Surplus Sharing Solutions for TU-Games," Theory and Decision, Springer, Springer, vol. 67(3), pages 303-340, September.
  15. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  16. Kohler, Marion, 2002. "Coalition formation in international monetary policy games," Journal of International Economics, Elsevier, vol. 56(2), pages 371-385, March.
  17. Maarten F. Cornet, 2003. "Partition function bargaining with public demands," Economic Theory, Springer, Springer, vol. 22(4), pages 845-862, November.
  18. Michel Grabisch & Yukihiko Funaki, 2011. "A coalition formation value for games with externalities," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00344797, HAL.
  19. Kolpin, Van, 1996. "Multi-Product Serial Cost Sharing: An Incompatibility with the Additivity Axiom," Journal of Economic Theory, Elsevier, vol. 69(1), pages 227-233, April.
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Cited by:
  1. Kai Lessmann & Ulrike Kornek & Valentina Bosetti & Rob Dellink & Johannes Emmerling & Johan Eyckmans & Miyuki Nagashima & Hans-Peter Weikard & Zili Yang, 2014. "The Stability and Effectiveness of Climate Coalitions: A Comparative Analysis of Multiple Integrated Assessment Models," Working Papers 2014.05, Fondazione Eni Enrico Mattei.

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