The Core in the Presence of Externalities

43 Pages Posted: 6 Apr 2002

See all articles by Laszlo A. Koczy

Laszlo A. Koczy

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS); Quantitative Social and Management Sciences Research Group, Budapest University of Technology and Economics

Date Written: April 2002

Abstract

We generalise the coalition structure core to partition function games. Our definition relies only on one crucial assumption, namely that there is some internal consistency in the game: residuals of the deviation play a game similar to the initial one, and - whenever this is possible - they come to a residual core outcome. 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 has 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 puzzle, which arose when more naive approaches were used. We outline possibilities for further extensions.

Keywords: Core, externalities, partition function, behavioural assumptions, equilibrium binding agreements

JEL Classification: C71, C73

Suggested Citation

Koczy, Laszlo A., The Core in the Presence of Externalities (April 2002). FEEM Working Paper No. 18.2002. Available at SSRN: https://ssrn.com/abstract=306280 or http://dx.doi.org/10.2139/ssrn.306280

Laszlo A. Koczy (Contact Author)

Hungarian Academy of Sciences (HAS) - Research Centre for Economic and Regional Studies (HAS) ( email )

Budaörsi 45
Budapest, H-1112
Hungary

HOME PAGE: http://www.mtakti.hu/en/kutatok/laszlo-a-koczy/276/

Quantitative Social and Management Sciences Research Group, Budapest University of Technology and Economics ( email )

Magyar Tudósok krt. 2.
Budapest, 1117
Hungary

HOME PAGE: http://qsms.mokk.bme.hu/index.php/koczy/

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