The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development
Edited by Carlo Carraro
Carlo Carraro The formation of coalitions is a widespread phenomenon in old and contemporary economies. A coalition emerges when a group of citizens form a club, when ﬁrms set up a cartel, when countries agree on free trade. A ﬁrm can be seen as a coalition, the outcome of international negotiations on environmental matters or on other economic issues are coalitions (for example, a monetary union is a coalition), a family can also be classed as a coalition. Research joint ventures and federal states are also coalitions. Relevant economic coalitions are numerous and cover the most important aspects of economic life. Economists and game-theorists have been working on coalition theory for many years. Most recently, their main goal was not to understand how a group of economic agents share the beneﬁt of forming a coalition (as in Nash’s seminal work and subsequently in Rubinstein’s important characterization). On the contrary, the main goal was to understand whether economic agents have an incentive to form a coalition, that is, whether they actually decide to form a coalition. Therefore, the issue is not whether the coalition is proﬁtable and how this proﬁt can be shared among coalition members, but whether the coalition is stable or self-enforcing, that is, which economic agents join the coalition and why.1 Most importantly, the reformulation of the problem of coalition formation in non-cooperative terms can handle the issue of competition between coalitions which in traditional cooperative theory was largely ignored (see the introduction to Kovalenkov...