The formation of coalitions to achieve both collaborative and competitive goals is a phenomenon we see all around us. The list is long and varied: production cartels, political lobbies, customs unions, environmental coalitions, and ethnic alliances are just a few everyday instances. Drawing upon and extending his inaugural Lipsey Lectures at the University of Essex, Debraj Ray looks at coalition formation from the perspective of game theory. How are agreements determined? Which coalitions will form? And are such agreements invariably efficient from a social perspective?

Ray brings together developments in both cooperative and noncooperative game theory to study the analytics of coalition formation and binding agreements. This book concentrates on pure theory, but discusses several potential applications, such as oligopoly and the provision of public goods.

"This beautifully written book synthesizes Ray's compelling perspective on negotiation and coalition formation. It should be required reading for any young economic theorist who aspires to understand the frontiers of this critical topic"--B. Douglas Bernheim, Edward Ames Edmonds Professor of Economics, Stanford University

"Debraj Ray, a remarkable and versatile economist, brings a fresh economic perspective to cooperative game theory. A must for anyone who wishes to discover the treasures hidden within the cooperative approach."--Ariel Rubinstein, Professor of Economics, Tel Aviv University and New York University

"Debraj Ray's strategic analysis of dynamic negotiations shows that colition agreements are sensitive to factors such as the bargaining protocol, externalities, renegotiation, and transfer payments--and the Coase Theorem's prediction of efficiency is sustained only in restricted situations. This is but one strand of a rich panorama of results in this important book, and Ray's substantial accomplishments in this area will inspire researchers and students alike."--Robert Wilson, Adams Distinguished Professor of Management, Emeritus, Stanford Graduate School of Business

"Debraj Ray has systematically re-examined the theory of coalition formation. In this book, he develops a broad and fundamental theory to help us better understand the problems of forming efficient social structures." --Roger Myerson, the Glen A. Lloyd Distinguished Service Professor of Economics, University of Chicago