(Sophisticated) Stable Sets in Exchange Economies
Posted: 13 Oct 2006
Within the framework of (pure) exchange economies, we demonstrate that the von Neumann and Morgenstern stable set in the allocation space may differ from that in the corresponding utility space. Following Harsanyi (1974, Management Sci. 20, 1472-1495), we then define the notion of the sophisticated stable set and establish an equivalent theorem: like the core, the sophisticated stable set in the allocation space coincides with that in the utility space. We also show that the sophisticated stable set has the desirable property of individual rationality.
JEL Classification: D51, C70, C71
Suggested Citation: Suggested Citation