A New Class of Welfare Maximizing Stable Sharing Rules for Partition Function Games with Externalities

We propose a new class of sharing rules for the distribution of the gains from cooperation for partition function games with externalities. We show that these sharing rules are characterized by three axioms: coalitional efficiency, additivity and anonymity. Moreover, they stabilize, in the sense of d’Aspremont et al. (1983), the coalition which generates the highest global welfare among the set of potentially stable coalitions. Our sharing rules are particularly powerful for economic problems that are characterized by positive externalities from coalition formation (outsiders benefit from the enlargement of coalitions) and which therefore typically suffer from free-riding. Our results also carry over to negative externality games in which cooperation is believed to be easier.