Abstract
We study coalition formation games with externalities where each agent’s payoff depends on the entire partition. As in Bloch (Games Econ Behav 14:90–123, 1996) and Ray and Vohra (Games Econ Behav 26:268–336, 1999), we assume that coalitions form sequentially and agreements are irreversible. Instead of a fixed order protocol, we use a “bidding mechanism” (see Pérez-Castrillo and Wettstein in Am Econ Rev 92(5):1577–1587, 2002) to determine proposals and transfers among the agents. We show that such a mechanism facilitates the attainment of efficiency; in particular, our game admits a Markov perfect equilibrium with the property of full dynamic efficiency. In addition, the aggregate equilibrium payoffs of our game exhibit monotonicity in time. Nevertheless, inefficient equilibria can also emerge.
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Xue, L., Zhang, L. Bidding and sequential coalition formation with externalities. Int J Game Theory 41, 49–73 (2012). https://doi.org/10.1007/s00182-011-0274-x
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DOI: https://doi.org/10.1007/s00182-011-0274-x