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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

    ()
    (Hogeschool-Universiteit Brussel (HUB), Belgium)

  • Finus, Michael

    (University of Exeter Business School,UK)

  • Mallozzi, Lina

    (University of Naples Federico II, Italy)

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 Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2011/08.

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Length: 27 page
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:hub:wpecon:201108

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Web page: http://research.hubrussel.be
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Keywords: partition function; coalition formation; externalities; surplus;

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