The Core with Commitment

Charles Zhoucheng Zheng

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: The core is reformulated to incorporate the externality typical in strategic form games, where a player's payoff may depend on the profile of actions across all players. Any coalition of players may reach an agreement on who takes what action within the coalition and then try to get the agreement binding by competing for the commitment opportunities. If a coalition succeeds in committing to its action profile, the outsiders' reactions constitute a core solution among the outsiders. A decentralized noncooperative game of competing principals is designed and the set of its subgame perfect equilibria, with some refinement conditions, is equal to the reformulated core. In a problem of pollution externality that resembles Prisoners' Dilemma with n players, the Pareto optimum is the unique element in the core.

Keywords: core; equilibrium; cooperative game theory; coalition; externality; competing principals; Coase Theorem (search for similar items in EconPapers)
JEL-codes: C7 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-gth
Date: 2009-03-26
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:13051

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