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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. 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.
  2. Ray, D. & Vohra, R., 1996. "A Theory of Endogenous Coalition Structure," Papers 68, Boston University - Industry Studies Programme.
  3. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  4. d'ASPREMONT, Claude & JACQUEMIN, Alexis & GABSZEWICZ, Jean J. & WEYMARK, John A., . "On the stability of collusive price leadership," CORE Discussion Papers RP -522, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  6. Marion Kohler, 1999. "Coalition formation in international monetary policy games," Bank of England working papers 92, Bank of England.
  7. Maarten F. Cornet, 2003. "Partition function bargaining with public demands," Economic Theory, Springer, vol. 22(4), pages 845-862, November.
  8. Sang-Seung, Yi, 1996. "Endogenous formation of customs unions under imperfect competition: open regionalism is good," Journal of International Economics, Elsevier, vol. 41(1-2), pages 153-177, August.
  9. Sandler,Todd, 2004. "Global Collective Action," Cambridge Books, Cambridge University Press, number 9780521834773.
  10. Geoffroy de Clippel & Roberto Serrano, 2008. "Marginal Contributions and Externalities in the Value," Econometrica, Econometric Society, vol. 76(6), pages 1413-1436, November.
  11. Montero, M.P., 1999. "Coalition Formation in Games with Externalities," Discussion Paper 1999-121, Tilburg University, Center for Economic Research.
  12. Hans-Peter Weikard, 2005. "Cartel Stability under an Optimal Sharing Rule," Working Papers 2005.77, Fondazione Eni Enrico Mattei.
  13. 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.
  14. 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, vol. 98(2), pages 185-99, May.
  15. Fuentes-Albero, Cristina & Rubio, Santiago J., 2010. "Can international environmental cooperation be bought?," European Journal of Operational Research, Elsevier, vol. 202(1), pages 255-264, April.
  16. 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.
  17. Matthew McGinty, 2007. "International environmental agreements among asymmetric nations," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 45-62, January.
  18. Bolger, E M, 1989. "A Set of Axioms for a Value for Partition Function Games," International Journal of Game Theory, Springer, vol. 18(1), pages 37-44.
  19. René Brink & Yukihiko Funaki, 2009. "Axiomatizations of a Class of Equal Surplus Sharing Solutions for TU-Games," Theory and Decision, Springer, vol. 67(3), pages 303-340, September.
  20. Michel Grabisch & Yukihiko Funaki, 2008. "A coalition formation value for games with externalities," Documents de travail du Centre d'Economie de la Sorbonne b08076, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  21. Debraj Ray & Rajiv Vohra, 2001. "Coalitional Power and Public Goods," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1355-1384, December.
  22. Poyago-Theotoky, Joanna, 1995. "Equilibrium and Optimal Size of a Research Joint Venture in an Oligopoly with Spillovers," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 209-26, June.
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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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