Coalitions with limited coordination
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Coalitions with limited coordination Leonidas C. Koutsougeras1 Received: 25 November 2019 / Accepted: 19 July 2020 © The Author(s) 2020
Abstract We study economies endowed with a market structure, where coalitions can form within each market but have no enforcement possibilities across markets. A standard cooperative game cannot be defined in this case. We develop a certain equilibrium notion which ties together the cores of the different markets. We provide an existence result and an application to economies with asymmetric information. Keywords Core · Multiple proposals · Incomplete coordination JEL Classification C71 · D50 · D82
1 Introduction The standard definition of the core of an exchange economy, as formalized in Debreu and Scarf (1963), is based on the idea of blocking: any group of agents can ‘block’ a proposed allocation by involving in trades among themselves, which are improving for the members of the group over the proposed allocation. The core is defined then as a feasible allocation which is not blocked by any coalition. There is one important detail in this definition that we will focus on: it involves one proposed allocation (or, equivalently, one set of net trades) which is then tested against deviations by coalitions. This scenario reflects the idea that there is a single ‘clearing house’ where all exchange takes place. Let us consider now the scenario where there are several ‘clearing houses’ where trades are being negotiated, i.e., coalitions are faced with multiple trade proposals. In such case one has to decide the extent of coordination power of coalitions: if coalitions are assumed able to coordinate the activities of their members
Thanks are due to the referees of this journal for useful suggestions. An early version of this paper was presented at the SWET 2018 workshop. I am grateful to the organizers and to participants for very constructive comments.
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Leonidas C. Koutsougeras [email protected] School of Social Sciences, University of Manchester, Oxford Road, Manchester M13 9PL, UK
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L. C. Koutsougeras
throughout the spectrum of proposals (complete coordination) then proposals can be jointly evaluated and accepted or blocked. In such a case the outcome of the negotiations is the same as in the standard definition of the core. If on the other hand the coordination powers of coalitions are limited (incomplete coordination) then one is faced with the problem of developing a convincing equilibrium concept. The central idea in this paper is that a coalition may not be able to enforce cooperation in all negotiations. Even if such a possibility exists, it is not clear that agents would prefer such an institutional arrangement over a more loose agreement that binds them together in a subset of the negotiations. In other words, it might be in the strategic interest of agents to cooperate only in a specified subset of the proposals. The idea of incomplete coordination has already cropped up in many guises in the literature. One reference to the issue, which is not the earli
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