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Externalities and Compensation: Primeval Games and Solutions

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Author Info

  • Ju, Y.
  • Borm, P.E.M.

    (Tilburg University, Center for Economic Research)

Abstract

The classical literature (Pigou (1920), Coase (1960), Arrow (1970)) and the relatively recent studies (cf.Varian (1994)) associate the externality problem with efficiency.This paper focuses explicitly on the compensation problem in the context of externalities.To capture the features of inter-individual externalities, this paper constructs a new game-theoretic framework: primeval games.These games are used to design normative compensation rules for the underlying compensation problems: the marginalistic rule, the concession rule, and the primeval rule.Characterizations of the marginalistic rule and the concession rule are provided and specific properties of the primeval rule are studied.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-71.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:200571

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Web page: http://center.uvt.nl

Related research

Keywords: externality; compensation; primeval games; marginalistic rule; concession rule; primeval rule;

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References

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  1. Pham Do, K.H. & Norde, H.W., 2002. "The Shapley Value for Partition Function Form Games," Discussion Paper 2002-4, Tilburg University, Center for Economic Research.
  2. Bolger, E M, 1989. "A Set of Axioms for a Value for Partition Function Games," International Journal of Game Theory, Springer, vol. 18(1), pages 37-44.
  3. Yuan Ju & David Wettstein, 2006. "Implementing Cooperative Solution Concepts: a Generalized Bidding Approach," Keele Economics Research Papers KERP 2006/06, Centre for Economic Research, Keele University.
  4. Ju, Y., 2004. "The Consensus Value for Games in Partition Function Form," Discussion Paper 2004-60, Tilburg University, Center for Economic Research.
  5. Ju, Y. & Borm, P.E.M., 2006. "A Non-cooperative Approach to the Compensation Rules for Primeval Games," Discussion Paper 2006-97, Tilburg University, Center for Economic Research.
  6. Yuan Ju & Peter Borm & Pieter Ruys, 2007. "The consensus value: a new solution concept for cooperative games," Social Choice and Welfare, Springer, vol. 28(4), pages 685-703, June.
  7. Hal R. Varian, 1994. "A Solution to the Problem of Externalities when Agents are Well-Informed}," Microeconomics 9401003, EconWPA.
  8. Inés Macho-Stadler & David Pérez-Castrillo & David Wettstein, 2004. "Sharing the surplus: A just and efficient proposal for environments with externalities," UFAE and IAE Working Papers 611.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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Citations

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Cited by:
  1. Yuan Ju & David Wettstein, 2006. "Implementing Cooperative Solution Concepts: a Generalized Bidding Approach," Keele Economics Research Papers KERP 2006/06, Centre for Economic Research, Keele University.
  2. Ju, Y. & Borm, P.E.M. & Ruys, P.H.M., 2004. "The Consensus Value: A New Solution Concept for Cooperative Games," Discussion Paper 2004-50, Tilburg University, Center for Economic Research.
  3. Ju, Y. & Borm, P.E.M., 2006. "A Non-cooperative Approach to the Compensation Rules for Primeval Games," Discussion Paper 2006-97, Tilburg University, Center for Economic Research.

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