Strategy-proof coalition formation

We analyze coalition formation problems in which a group of agents is partitioned into coalitions and agents’ preferences only depend on the identity of the members of the coalition they are members of. We study rules that associate to each profile of agents’ preferences a partition of the society. We are interested in rules that never provide incentives for the agents to misrepresent their preferences. Hence, we analyze strategy-proof rules and we focus on restricted domains of preferences, as the domain of additively representable or separable preferences. In such domains, only single-lapping rules satisfy strategy-proofness, individual rationality, non-bossiness, and flexibility. Single-lapping rules are characterized by severe restrictions on the set of feasible coalitions that are consistent with hierarchical organizations. These restrictions imply that single-lapping rules always select core-stable partitions. Thus, our results highlight the relation between the non-cooperative concept of strategy-proofness and the cooperative concept of corestability. We also analyze the implications for our results for matching problems. JEL classification: C71, C78, D71. ∗I am very grateful for their hospitality to the members of the W.A. Wallis Institute of Political Economy at the University of Rochester where this research was initiated. I thank seminar audiences at Rochester, MEDS–Northwestern, Caltech, and Carlos III, and specially Matt Jackson for their useful comments and suggestions. All remaining errors are only mine. †Current Address: Departamento de Teoŕıa e Historia Económica, Universidad de Málaga. Plaza El Ejido s/n, 29013 Málaga, SPAIN. E-mail: [email protected], URL: http://www.eco.uc3m.es/cralvare. Phone: (+34) 952 13 1250, Fax: (+34) 952 13 1299.