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The Veto Power of The Grand Coalition in Economies With Consumption Externalities

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Abstract

The goal of this paper is to provide some new cooperative characterizations of competitive equilibria in pure exchange economies with consumption externalities. In this framework, several notions of equilibrium supported by prices are possible. The central notion analyzed in the paper is the one of A-equilibrium in which individual preferences are affected by consumption externalities in a very broad sense. Indeed, each individual i takes into account in her preferences the consumption of a group of agents Ai exogenously given. Following Hervés-Beloso and Moreno-García (2008), Hervés-Beloso et al. (2005), Hervés-Beloso and Moreno-García (2009), we show that the veto power of the grand coalition is enough to characterize A-equilibria despite the presence of externalities and provide applications in connection with strategic market games. Our results, for suitable choices of the sets Ai, imply characterizations of Walras-Nash, Berge, total and family equilibria of pure exchange economies with externalities.

Suggested Citation

  • Maria Gabriella Graziano & Marialaura Pesce & Vincenzo Platino, 2024. "The Veto Power of The Grand Coalition in Economies With Consumption Externalities," CSEF Working Papers 726, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:726
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    Keywords

    Exchange economy; consumption externalities; Aubin core; Edgeworth equilibria; robust efficiency; two-player games.;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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