Stable partitions in a model with group-dependent feasible sets

In this paper we consider a model of group formation where group of individuals may have different feasible sets. We focus on two polar cases, increasing returns, when the set of feasible alternatives increases if a new member joins the group, and decreasing returns, when a new member has an opposite effect and reduces the number of alternatives available for the enlarged group. We examine two notions, stability and strong stability of group structures, that correspond to Nash and Strong Nash equilibrium of the associated non-cooperative game, and identify the classes of stable and strongly stable environments. Copyright Springer-Verlag Berlin/Heidelberg 2005