Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336060 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12360
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
We study coalition formation with externalities under voluntary, non-binding participation. Motivated by climate agreements, where standard modeling predicts small, inefficient coalitions, we propose a new solution concept—the self-enforcing stable set. It synthesizes the self-enforcing logic of non-cooperative approaches with the consistency requirement of cooperative forward-looking stability. By endogenizing players' beliefs about the eventual outcomes of negotiations, we show that rational foresight disciplines strategic free-riding and selects constrained Pareto efficient outcomes. In canonical climate-agreement models, this yields sharp predictions: stable coalitions must be large and only mildly fragmented, aligning closely with observed participation patterns.
Subjects: 
coalition formation
self-enforcing agreements
international agreements
public goods
climate change
JEL: 
C71
F53
H41
Q54
Document Type: 
Working Paper
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