A Non-Cooperative Foundation of Core-Stability in Positive Externality Ntu-Coalition Games

Abstract

We identify the core as an appealing stability concept of cooperative game theory, but argue that the non-cooperative approach has conceptual advantages in the context of economic problems with externalities. Therefore, we derive a non-cooperative foundation of core-stability for positive externality NTU-games. First, in the spirit of Hart/Kurz (1983), we develop a game that we call - game and show that strong Nash equilibria coalition structures in this game are identical to - and - core stable coalition structures. Second, as a by-product of the definition of the - game, we develop an extension called an - game. Finally, we compare equilibria in the - and - game with those in the - and - game of Hart and Kurz (1983).We identify the core as an appealing stability concept of cooperative game theory, but argue that the non-cooperative approach has conceptual advantages in the context of economic problems with externalities.

Keywords: Core-stability, Non-cooperative Game Theory, Positive Externality Games

JEL Classification: C72