Efficiency in Coalition Games with Externalities

A natural extension of superadditivity is not sufficient to imply that the grand coalition is efficient when externalities are present. We provide a condition, analogous to convexity, that is sufficient for the grand coalition to be efficient and show that this also implies that the (appropriately de…fined) core is nonempty. Moreover, we propose a mechanism which implements the most efficient partition for all coalition formation games and characterize the resulting payoff division.