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

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.