Abstract
In this paper we consider a production economy and adopt a cooperative approach to equilibrium analysis which allows each individual to cooperate with others and to form a coalition whose members have access to the available technologies. We investigate the behavior of the core defined with respect to preferences (preferences-core) and with respect to resources (resources-core). We introduce a measure of social loss with respect to the core of the production economy which characterizes the corresponding core allocations. Our definition of the core requires that coalitions proposing a deviation take into account the consequences that changes in production plans may have for the counter-coalitions (considerate dominance). Our characterization holds in the presence of consumption externalities and an optimistic or a pessimistic attitude of coalition agents with respect to the behavior of outsiders.
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This work was financial supported by the Project 000004 Star Linea 1 - 2020 and Prin 2022 HLPMKN. The authors thank seminar participants at the SI & GE XI (Paris, January 2023) and 22nd SAET (Paris, July 2023), for their constructive comments and questions. We are grateful to the anonymous referee of this journal for helpful comments and suggestions.
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Graziano, M.G., Platino, V. A measure of social loss for production economies with externalities. Econ Theory (2024). https://doi.org/10.1007/s00199-024-01574-9
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DOI: https://doi.org/10.1007/s00199-024-01574-9