Cartel stability under an optimal sharing rule

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Abstract

In this paper I analyse the stability of cartels in games with heterogeneous players and externalities. I introduce a class of sharing rules for coalition pay-offs, called 'optimal sharing rules', that stabilize all cartels that are possibly stable under some arbitrary sharing rule. To illustrate the impact of optimal sharing with heterogeneous players and positive externalities I analyse a public goods game. In contrast to games with identical players that are common in the study of international environmental agreements, my results show that large coalitions may well be stable when optimal sharing is applied.
Original languageEnglish
Pages (from-to)575-593
JournalThe Manchester School
Volume77
Issue number5
DOIs
Publication statusPublished - 2009

Keywords

  • international environmental agreements
  • stable coalition structures
  • climate agreements
  • externalities
  • membership

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