Strategy-Proof Coalition Formation∗ Carmelo Rodŕıguez-Álvarez† Universidad Carlos

We analyze coalition formation problems in which a group of agents is parti-tioned into coalitions and agents ’ preferences only depend on the identity of the members of the coalition they are members of. We study rules that associate to each profile of agents ’ preferences a partition of the society. We are interested in rules that never provide incentives for the agents to misrepresent their prefer-ences. Hence, we analyze strategy-proof rules and we focus on restricted domains of preferences, as the domain of additively representable or separable preferences. In such domains, only single-lapping rules satisfy strategy-proofness, individual ra-tionality, non-bossiness, and flexibility. Single-lapping rules are characterized by severe restrictions on the set of feasible coalitions that are consistent with hier-archical organizations. These restrictions imply that single-lapping rules always select core-stable partitions. Thus, our results highlight the relation between the non-cooperative concept of strategy-proofness and the cooperative concept of core-stability. We also analyze the implications for our results for matching problems. JEL classification: C71, C78, D71. ∗I am very grateful for their hospitality to the members of the W.A. Wallis Institute of Political Economy at the University of Rochester where this research was initiated. I thank seminar audiences at Rochester, MEDS–Northwestern, Caltech, and Carlos III, and specially Matt Jackson for their useful comments and suggestions. All remaining errors are only mine