Coalition Formation Problems With Externalities

We study coalition formation problems with general externalities. We prove that if expectations are not prudent a stable coalitions structure can fail to exist. Under prudent expectations a stable coalition structure exists if the set of admissible coalitions is single-lapping. This assumption also guarantees the existence of a stable and efficient coalition structure. However, under this assumption, the stable set is not a singleton, and no stable and efficient strategy-proof revelation mechanism exists, differently from the case in which agents care only about the coalition they belong to. However, the stable correspondence is implementable in Nash equilibrium.