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An Almost Ideal Sharing Scheme for Coalition Games with Externalities

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  • Eyckmans, Johan
  • Finus, Michael

Abstract

Cooperative agreements among firms to coordinate R&D investments and share knowledge or coordination among nations to reduce trade barriers or to provide global public goods usually proves difficult due to free-rider incentives. In this paper, we propose a sharing scheme for the distribution of the gains from cooperation for games with externalities and heterogeneous players in order to mitigate free-rider problems. We show that every sharing rule belonging to our scheme leads to the same set of stable coalitions which is never empty. This scheme is "almost ideal" because it stabilizes those coalitions generating the highest possible global worth among the set of all "potentially stable coalitions". Our Almost Ideal Sharing Scheme is particularly powerful for economic problems where outsiders benefit from the coalition's actions (positive externalities) and which therefore are likely to suffer from severe free-riding.

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Bibliographic Info

Paper provided by University of Stirling, Division of Economics in its series Stirling Economics Discussion Papers with number 2009-10.

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Date of creation: Apr 2009
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Handle: RePEc:stl:stledp:2009-10

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Postal: Division of Economics, University of Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467473
Fax: +44 (0)1786 467469
Web page: http://www.econ.stir.ac.uk/
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Keywords: sharing schemes; externalities; partition function; coalition games;

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References

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  1. 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.
  2. Juan-Carlos Altamirano-Cabrera & Michael Finus, 2006. "Permit trading and stability of international climate agreements," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 19-48, May.
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  17. Marion Kohler, 1999. "Coalition formation in international monetary policy games," Bank of England working papers 92, Bank of England.
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