The Endogenous Formation of Economic Coalitions

The Endogenous Formation of Economic Coalitions

The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development

Edited by Carlo Carraro

This important book, written by some of the leading scholars in the field, provides a comprehensive overview of recent advances in coalition theory and presents both the latest theoretical developments and novel applications in the field of economics.

Introduction

Carlo Carraro

Subjects: economics and finance, environmental economics, environment, environmental economics

Extract

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...