Competitive outcomes and endogenous coalition formation in an n-person game (original) (raw)
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The two main questions in coalition games are 1) what coalitions should form and 2) how to distribute the value of each coalition between its members. When a game is not superadditive, other coalition structures (CSs) may be more attractive than the grand coalition. For example, if the agents care about the total payoff generated by the entire society, CSs that maximize utilitarian social welfare are of interest. The search for such optimal CSs has been a very active area of research. Stability concepts have been defined for games with coalition structure, under the assumption that the agents agree first on a CS, and then the members of each coalition decide on how to share the value of their coalition. An agent can refer to the values of coalitions with agents outside of its current coalition to argue for a larger share of the coalition payoff. To use this approach, one can find the CS s★ with optimal value and use one of these stability concepts for the game with s★. However, it m...
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We provide a new characterization of competitive equilibrium allocations based on the veto mechanism. In order to test whether an allocation is competitive, we define a family of economies by perturbing the initial endowments of a coalition, and check whether this allocation is dominated in the perturbed economies. Indeed, in pure exchange economies with a continuum of non-atomic agents, the competitive equilibria are characterized by the veto power of the grand coalition, formed by all the agents in the economy. The welfare theorems are obtained as easy corollaries of our main result.
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