Self-enforcing Stable Sets

Hiroaki Sakamoto, Christian Traeger and Christian P. Traeger

No 12360, CESifo Working Paper Series from CESifo

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.

Keywords: coalition formation; self-enforcing agreements; international agreements; public goods; climate change (search for similar items in EconPapers)
JEL-codes: C71 F53 H41 Q54 (search for similar items in EconPapers)
Date: 2025
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