The coalition formation problem in an economy with externalities can be adequately modeled by using games in partition function form (PFF games), proposed by Thrall and Lucas. If we suppose that forming the grand coalition generates the largest total surplus, a central question is how to allocate the worth of the grand coalition to each player, i.e., how to find an adequate solution concept, taking into account the whole process of coalition formation. We propose in this paper the original concepts of scenario-value, process-value and value, which represent the average contribution of players in a scenario (a particular sequence of coalitions within a given coalition formation process), in a process (a sequence of partitions of the society), and in the whole (all processes being taken into account), respectively. We give an application to Cournot oligopoly, and two axiomatizations of our solution concept. A comparison with the value proposed by Macho-Stadler et al. for PFF games is done.
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Find related papers by JEL classification: D62 - Microeconomics - - Welfare Economics - - - Externalities C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
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