Farsightedness and Cautiousness in Coalition Formation
33 Pages Posted: 26 Jul 2003
Date Written: June 2003
We adopt the largest consistent set defined by Chwe [J. of Econ. Theory 63 (1994), 299-235] to predict which coalition structures are possibly stable when players are farsighted. We also introduce a refinement, the largest cautious consistent set, based on the assumption that players are cautious. For games with positive spillovers, many coalition structures may belong to the largest consistent set. The grand coalition, which is the efficient coalition structure, always belongs to the largest consistent set and is the unique one to belong to the largest cautious consistent set.
Keywords: Coalition Formation, Farsightedness, Cautiousness, Positive Spillovers, Largest Consistent Set
JEL Classification: C70, C71, C72, C78
Suggested Citation: Suggested Citation