The core in the presence of externalities

László Kóczy ()

Economics Bulletin, 2001, vol. 28, issue 23, A0

Abstract: We generalise the coalition structure core to games in partition function form. In our definition we make only one assumption, namely that there is some internal consistency in the game: Residuals of the deviation play a game similar to the initial one, and come to a residual core outcome – whenever this is possible. Deviating players form their optimistic or pessimistic expectations with this in mind. This leads to a recursive definition of the core. When compared to existing approaches, our core concept shows a reduced sensitivity to behavioural assumptions. We look at the core of an economy with a common pool resource defined by Funaki and Yamato (1999) and find that for a number of numerical examples our core concept resolves the contradiction, which arose when more naive approaches were used. Possibilities for further extensions are outlined.

JEL-codes: C7 (search for similar items in EconPapers)
Date: 2001-11-20
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