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The Endogenous Formation of Economic Coalitions

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.
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Chapter 5: Stable coalitions

Carlo Carraro and Carmen Marchiori


Carlo Carraro and Carmen Marchiori 1. INTRODUCTION Coalitions are a widespread phenomenon in old and modern societies. Households can be seen as coalitions, as well as nations or research joint ventures. In industrial economics, cartels have been interpreted as coalitions, whereas in environmental economics, agreements among several nations to protect the international environment have also been described as coalitions. In recent years, the problem of global public goods, such as the international environment, but also peace or crime control, has become increasingly important. Transnational externalities, being related to knowledge, information, migrations, pollution, crime and similar flows, play a major role in international politics. Their importance and close link to economic development may affect growth and welfare at a macroeconomic level. Hence the need for global policies to correct their undesired effects. In the present institutional setting – with no supranational governing bodies – global externalities cannot be corrected by global institutions, which do not exist, but need to be corrected by voluntary agreements among sovereign states and/or by voluntary initiatives undertaken by firms, industries, households, NGOs and so on. This situation requires international cooperation among nations and/or agents. To analyse the emergence of international cooperation, economists have used a fairly new game-theoretic approach, in which cooperation is the outcome of a non-cooperative strategic behaviour of the players involved in the negotiations. This approach has been proposed both in games without spillovers (Le Breton and Weber, 1993; Konishi, Le Breton and Weber, 1997) and in games with positive or negative spillovers...

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