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Cooperative Microeconomics

Cooperative Microeconomics: A Game-Theoretic Introduction

Hervé Moulin
Copyright Date: 1995
Pages: 440
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  • Book Info
    Cooperative Microeconomics
    Book Description:

    Over the past fifty years game theory has had a major impact on the field of economics. It was for work in game theory that the 1994 Nobel Prize in Economics was awarded. Although non-cooperative game theory is better known, the theory of cooperative games has contributed a number of fundamental ideas to microeconomic analysis.Cooperative Microeconomicsis the definitive textbook on these contributions.

    Designed to be used by undergraduate and graduate students, the book provides a thorough introduction and overview of its subject. Hervé Moulin distinguishes among three primary modes of cooperation: cooperation by direct agreements; cooperation by just, equitable compromise; and cooperation by decentralized behavior. This tri-modal methodology is applied successively to the exchange of private goods, the fair division of unproduced commodities, the cooperative production of private and public goods, and cost-sharing.

    Moulin proposes an elementary and self-contained exposition (supplemented by over 125 exercises) of the main cooperative concepts for microeconomic analysis, including core stability, deterministic solutions (such as the Shapley value), and several broad principles of equity (such as the No Envy and Stand Alone tests). The book also covers the most important failures of the decentralized behavior: the tragedy of the commons and the free rider problem in the provision of public goods. _Cooperative Microeconomics_ is the first book of its kind, and it will be widely used in courses in microeconomics and game theory.

    Originally published in 1995.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6414-0
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-x)
  3. Acknowledgements
    (pp. 1-2)
  4. Overview of the Book
    (pp. 3-4)
  5. CHAPTER 1 The Three Modes of Cooperation: Agreements, Decentralization, and Justice
    (pp. 5-44)

    Cooperation in the economic tradition is mutual assistance between egoists. The archetypical example is Rousseau’s staghunt: by coordinating their efforts, the two hunters more than double the returns of one isolated hunter; therefore each hunter can receive a positive profit from cooperation. Thus is cooperation justified (from the normative angle of rational pursuit of one’s interest) and predicted (a positive statement about the behavior of selfish hunters).

    That cooperation can be explained by the rational choice of self-interested parties, rather than by altruism, was most clearly stated in the celebrated passage from The Wealth of Nations: “In almost every other...

  6. CHAPTER 2 Core and Competitive Equilibrium: One Good and Money
    (pp. 45-102)

    Markets describe the exchange and production of commodities in the private property regime. The ownership structure assigns each unit of good and each technology to exactly one participant.¹ Under specialization and division of labor, the initial allocation of resources is not expected to be Pareto optimal: farmers produce more vegetables than they care to eat, landowners have more land than they can plow, workers gladly give up some of their leisure for a meal ticket, and so on. Markets are meant to exploit these cooperative opportunities by eliciting Pareto improving trades.

    Two concepts yield a unified treatment of the trading...

  7. CHAPTER 3 Core and Competitive Equilibrium: Multiple Goods
    (pp. 103-162)

    Both concepts of the core and of the competitive equilibrium are defined in a much broader class of markets than the reading of Chapter 2 would suggest. Those markets may involve an arbitrary finite (or infinite)¹ number of different (heterogeneous) goods; each one of these goods may be perfectly divisible, or it may come in indivisible units.

    On the agents side, individual preferences are not restricted by the severe assumption of quasi-linearity: we usually assume that preferences are monotonic, although that assumption is not essential; see Section 3.6. In fact, even the transitivity of preferences and their completeness...

  8. CHAPTER 4 Fair Division: The No Envy Test
    (pp. 163-238)

    Chapters 4 and 5 deal with the allocation of private (and public) goods in the common ownership regime. Fair division is the embodiment of a normative problem of distributive justice formulated in the language of microeconomics. Our primary concern is the definition of reasonable tests of equity, selecting as often as possible a small subset of efficient and “just” outcomes. This is cooperation in the justice mode. Yet, in accord with the program stated in Chapter 1, we address fair division in the decentralized mode as well; see the discussion of divide and choose at the end of this chapter....

  9. CHAPTER 5 Fair Division: The Stand Alone Test
    (pp. 239-323)

    A given group of agents use jointly a certain technology namely, a production process transforming certain inputs (provided by the agents) into certain outputs.

    This formulation is general enough to include many different models, where the output may be a private or a public good and the marginal cost of production may increase or decrease.

    A first series of examples are from common property resources such as fisheries, forests, pastures, mines, and other increasing marginal cost technologies. The agents contribute the fishing (or cutting, or digging) input and collect the fish (or wood, or minerals) output. For instance, in Example...

  10. CHAPTER 6 Production Externality Games
    (pp. 324-401)

    We continue the discussion of cooperative production initiated in Chapter 5, looking now at the decentralized mode of cooperation (Section 1.6) in the same production problems, namely, the provision of a public good (or bad), and the production of a private good under increasing or decreasing marginal costs.

    We study half a dozen simple mechanisms illustrating several fundamental patterns of strategic externalities.¹ These are (i) voting games to select the level of provision of a public good, or bad (Section 6.2), (ii) the provision of a public good by voluntary contributions (Section 6.3), (iii) the exploitation of commons by equal...

  11. CHAPTER 7 Cooperative Games
    (pp. 402-440)

    This chapter is a brief overview of the two main concepts of the theory of cooperative games, namely, the core and the Shapley value. The technical level of the discussion is higher than in the previous chapters: our attention is focused on the main mathematical results about core existence and on the axiomatic characterization of the Shapley value. Many important (yet, in my view, secondary) concepts are not discussed at all. The most notable omissions are the second-order stability concepts (such as the Von Neumann-Morgenstern stable sets or the bargaining set) and the alternative concepts of value (such as the...

  12. Bibliography
    (pp. 441-450)
  13. Index
    (pp. 451-454)