, Volume 38, Issue 1, pp 3-16
Date: 09 Aug 2008

Core extensions for non-balanced TU-games

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Abstract

A family of core extensions for cooperative TU-games is introduced. These solution concepts are non-empty when applied to non-balanced games yet coincide with the core whenever the core is non-empty. The extensions suggest how an exogenous regulator can sustain a stable and efficient outcome, financing a subsidy via individual taxes. Economic and geometric properties of the solution concepts are studied. When taxes are proportional, the proportional prenucleolus is proposed as a single-valued selection device. An application of these concepts to the decentralization of a public goods economy is discussed.

We wish to thank the editor, a referee, an anonymous reviewer, Beth Allen, Marc Dudey, Yakar Kannai, Herve Moulin, Marcel Richter, Luis Sánchez-Mier, and the participants in the Microeconomic Theory Workshop at Rice University for their helpful comments.