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Dynamic Coalition Formation and the Core

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Author Info

  • Tone Dieckmann;

    ()
    (Economics, National University of Ireland, Maynooth)

  • Ulrich Schwalbe

    (Department of Economics, Finance and Accounting, University of Mannheim)

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    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.

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    Bibliographic Info

    Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n810798.

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    Length: 16 pages
    Date of creation: Jul 1998
    Date of revision:
    Handle: RePEc:may:mayecw:n810798

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    Postal: Maynooth, Co. Kildare
    Phone: 353-1-7083728
    Fax: 353-1-7083934
    Web page: http://economics.nuim.ie
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    Related research

    Keywords: TU Games; Coalition Formation; Bounded Rationality; Core;

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    References

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    1. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    2. Ulrich Schwalbe & Siegfried K. Berninghaus, 1996. "Conventions, local interaction, and automata networks," Journal of Evolutionary Economics, Springer, vol. 6(3), pages 297-312.
    3. Ehud Kalai, 1978. "A Group Incentive Compatible Mechanism Yielding Core Allocation," Discussion Papers 329, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-31, March.
    5. G. Noldeke & L. Samuelson, 2010. "An Evolutionary Analysis of Backward and Forward Induction," Levine's Working Paper Archive 538, David K. Levine.
    6. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    7. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
    8. Perry, M. & Rany, P., 1992. "A Non-Cooperative View of Coalition Formation and the Core," UWO Department of Economics Working Papers 9203, University of Western Ontario, Department of Economics.
    9. Tone Dieckmann, 1997. "The Evolution of conventions with Mobile Players," Economics, Finance and Accounting Department Working Paper Series n720897, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    10. Murali Agastia, . "Adaptive Play in Multiplayer Bargaining Situations," ELSE working papers 007, ESRC Centre on Economics Learning and Social Evolution.
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