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Dynamic Coalition Formation and the Core

Author

Listed:
  • Tone Dieckmann;

    (Economics, National University of Ireland, Maynooth)

  • Ulrich Schwalbe

    (Department of Economics, University of Mannheim)

Abstract

This paper presents a dynamic model of endogenous coalition formation in cooperative games with transferable utility. The players are boundedly rational. At each time step, a player decides which of the existing coalitions to join, and demands a payoff. These decisions are determined by a (non- cooperative) best-reply rule, given the coalition structure and allocation in the previous period. We show that absorbing states of the process exist if the game is essential. Further, if the players are allowed to experiment with myopically suboptimal strategies whenever there are potential gains from trade, an isomorphism between the set of absorbing states of the process and the set of core allocations can beestablished, and the process converges to one of these states with probability one whenever the core is non-empty. This result holds independently of the form of the characteristic function.

Suggested Citation

  • Tone Dieckmann; & Ulrich Schwalbe, 1998. "Dynamic Coalition Formation and the Core," Economics Department Working Paper Series n810798, Department of Economics, National University of Ireland - Maynooth.
    • Handle: RePEc:may:mayecw:n810798
    as

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    File URL: http://repec.maynoothuniversity.ie/mayecw-files/N810798.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    TU Games; Coalition Formation; Bounded Rationality; Core;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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