The Core of a Cooperative Game

The main fundamental question in cooperative game theory is the question how to allocate the total generated wealth by the collective of all players—the player set N itself—over the different players in the game. In other words, what binding contract between the players in N has to be written? Various criteria have been developed. In this chapter I investigate contracts that are stable against deviations by selfish coalitions of players. Here the power of the various coalitions in the negotiation process is central. Hence, the central consideration is that coalitions will abandon the negotiation process if they are not satisfied in their legitimate demands. This is at the foundation of the concept of the Core of a cooperative game and subject of the present chapter. The Core stands in contrast with (Shapley) value theory, which is explored in the next chapter. Value theory aims at balancing criteria describing negotiation power with fairness considerations. This approach leads to the fair allocation of assigned values to the different coalitions. In certain respects these two approaches to the fundamental question of cooperative game theory conflict with each other. Core allocations are founded on pure power play in the negotiation process to write a binding agreement. It is assumed that coalitions will not give up on their demands under any circumstance. This is very different in comparison with the Value. In Value theory it is assumed that coalitions will forego demands based on the exercise of pure power, but instead abide by a given set of behavioral principles including a certain reflection of power and fairness. This leads to situations in which the Value is not a Core allocation, while in other situations the Value is a central allocation in the Core. The first case refers to a conflict between fairness and power considerations, while the second case refers essentially to the alignment of the fairness and power aspects in these two approaches. On the other hand there is also a very interesting overlap or agreement between the two approaches based on power (the Core) and balancing power and fairness (the Value). The common feature here is that power is a common feature of these two solution concepts. Therefore, it is crucial to understand the presence and exercise of power in allocation processes in a cooperative game. I will explore these aspects in this and the next chapter as well.