Binding Agreements
by
Effrosyni Diamantoudi
Department of Economics, University of Aarhus

This paper ascertains which partitions of players will emerge and what actions will these players choose under each partition, when they can negotiate with each other and their actions have externalities. Naturally, the environment is depicted by a normal form game. The solution is a collection of pairs, each consisting of a coalition structure and a strategy profile. Although this paper addresses the same question the Ray and Vohra (1997) paper did, it does so in manner that overcomes the problems embedded in their approach. In particular, we assume that once a coalition deviates it fears the worst, given that the non-members do the best for themselves. In doing so, we improve upon previous solution concepts (e.g. strong and coalition-proof Nash equilibria) by NOT assuming that all other players will stay put. Yet, unlike the Ray and Vohra approach, we do not endow the deviating coalition with the power of imposing its will on all of the other players. A solution concept is defined and its properties (efficiency, etc.) and applications are discussed.

Date received: June 15, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cafi-87.