The Shapley Value and Games with Hierarchies

Tinbergen Institute Discussion Paper 2019-064/II

30 Pages Posted: 17 Sep 2019

See all articles by Encarnacion Algaba

Encarnacion Algaba

University of Seville

Rene van den Brink

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: September 5, 2019

Abstract

In this paper we focus on restrictions arising from the players belonging to some hierarchical structure that is represented by a digraph. Two of these models are the games with a permission structure and games under precedence constraints. In both cases, the hierarchy can be represented by a directed graph which restricts the possibilities of coalition formation. These two approaches led to two different type of solutions in the literature. The precedence power solutions for games under precedence constraints, are axiomatized with an axiom that applies a network power measure to the precedence constraint. We will show that something similar can be done for games with a permission structure, and obtain a class of permission power solutions. This class contains the (conjunctive) permission value. With this we have two classes of solutions for games with a hierarchy, one based on permission structures and another based on precedence constraints, that are characterized by similar axioms. Moreover, the solutions are linked with network power measures.

Keywords: cooperative transferable utility game, permission structures, precedence constraints, Shapley value, hierarchical solution, power measures

JEL Classification: C71

Suggested Citation

Algaba, Encarnacion and van den Brink, Rene, The Shapley Value and Games with Hierarchies (September 5, 2019). Tinbergen Institute Discussion Paper 2019-064/II, Available at SSRN: https://ssrn.com/abstract=3449949 or http://dx.doi.org/10.2139/ssrn.3449949

Encarnacion Algaba (Contact Author)

University of Seville ( email )

Rene Van den Brink

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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