Stability and Cooperative Solution in Stochastic Games  Elena M. Parilina y and Alessandro Tampieri z November 28, 2014 Abstract Cooperative game theory is e/ective in explaining many economic interactions, such as risk-sharing agreements or the enforcing role of social norms. In a stochastic environ- ment, the analysis of these issues is generalised by taking into account the presence of shocks. The paper nds the conditions of dynamic stability for cooperative stochastic games. Principles of dynamic stability include three conditions: subgame consistency, strategic stability and irrational-behaviour-proof of the cooperative agreement. JEL codes: C71, C73. Keywords: cooperative stochastic game, stationary strategies, time consistency, sub- game consistency, strategic stability, irrational-behaviour-proof.  We are grateful to Stefania Bortolotti, Andreas Irmen, Anastasia Litina, Arsen Palestini, Leon Pet- rosyan, Pierre Picard, Giuseppe Pignataro and Benteng Zou for helpful comments. A previous version of this paper was presented at Game Theory and Management Conference (St. Petersburg, 2011). The usual disclaimer applies. y Faculty of Applied Mathematics and Control Processes, Saint Petersburg State University, Universitet- skii prospekt 35, Petergof, Saint-Petersburg, Russia 198504; e.parilina@spbu.ru. z Faculty of Law, Economics and Finance, University of Luxembourg, Avenue de la Faencerie 162a, L - 1511 Luxembourg; tamp79@gmail.com. 1