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A new solution for cooperative game with public externalities: Analysis based on axiomatic method

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  • Juanjuan Fan
  • Ying Wang

Abstract

This paper introduces a new solution concept for the Cooperative Game with Public Externalities, called the w-value, which is characterized by three properties (axioms), namely Pareto-optimality (PO), Market-equilbrium (ME) and Fiscal-balance (FB). Additionally, the implementation mechanism for w-value is also provided. The w-value exists and is unique. It belongs to the core. And, more specifically, it belongs to the -core. Meanwhile, the computational cost of w-value is very low. Therefore, the w-value is a theoretically more compelling solution concept than the existing cooperation game solutions when analyzing cooperative games with public externalities. A numerical illustration shows the calculation steps of w-value. Meanwhile, the w-value well explains the reason why the mandatory emission reduction mechanism must be transformed into a "nationally determined contribution" mechanism in current international climate negotiations.

Suggested Citation

  • Juanjuan Fan & Ying Wang, 2025. "A new solution for cooperative game with public externalities: Analysis based on axiomatic method," Papers 2502.16800, arXiv.org.
    • Handle: RePEc:arx:papers:2502.16800
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    File URL: http://arxiv.org/pdf/2502.16800
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