Abstract

I examine a setting, where an information sender conducts research into a payoff-relevant state variable, and releases information to agents, who consider joining a coalition. The agents’ actions can cause harm by contributing to a public bad. The sender, who has commitment power, by designing an information mechanism (a set of signals and a probability distribution over them), maximises his payoff, which depends on the action taken by the agents, and the state variable. I derive the optimal information mechanism from the general set of public information mechanisms, in coalition formation games. I show that the coalition size, as a function of beliefs of agents, is an endogenous variable, induced by the information sender. I also apply the results to International Environmental Agreements (IEAs), where a central authority, as an information sender, attempts to reduce the global level of greenhouse gases(GHG) by communication of information on social cost of GHG.