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Abstract We dene a new notion of dominance, sequential z-dominance, and show that for any TU game with a nonempty core, every process of successive blocks must terminate in the core if the notion of sequential z-dominance is employed. Moreover, this result leads to an upper bound for the number of blocks needed to reach the core, which is lower than the one given in Kczy (2006). o JEL classication numbers: C71; C73 Keywords: Core; Bargaining process; dominance; accessibility

Introduction

The core of a TU (transferable utility) game consists of imputations that cannot be blocked by any coalition of players. This means that the core enjoys a stability property: Once a core imputation is proposed as a solution for the game, no coalition can improve upon it. In case the given initial imputation x does not lie in the core, then a coalition S whose members can do better by forming S may threaten to leave the grand coalition and thereby suggest an alternative imputation y. Again, if y stands outside the core, another blocking coalition could replace y with a third imputation, and so on. The question that arises naturally is whether the process of successive blocks leads to the core. Clearly, the answer to the question depends on which notion of dominance is adopted. By employing weak dominance 1 , Sengupta and Sengupta (1996)

The author is very grateful to three anonymous referees for their perceptive comments of the paper. All remaining errors, of course, are my own. Department of Mathematics, Aletheia University, 25103, Taipei, Taiwan. E-mail address: yyyang@mail.au.edu.tw 1 A weak dominance is a dominance relation in which not every member of the blocking coalition is strictly better o.

solve the question in the armative by showing that if the core is nonempty, the execution of a certain algorithm will generate a nite sequence of successively dominating imputations that terminates in the core. On the other hand, such an accessibility property of the core may not hold with strict dominance. Kczy (2006) addresses the issue of estimating the number of blocks o needed to reach the core. Based on the accessibility of the core proved by Sengupta and Sengupta (1996), Kczy shows that the core can be reached o via a bounded sequence of blocks and proposes an algorithm for generating such a sequence. In the present paper, we study the accessibility of the core by adopting an alternative notion of dominance, namely, sequential z-dominance, which suggests that when contemplating counterproposals, blocking coalitions should employ a pre-decided core imputation z as a bench mark and take all former negotiations into consideration such that the blocking imputations chosen at each step of the bargaining process do not make any of the past blocking coalitions worse o. As an extension of Sengupta and Senguptas (1996) result, we prove that when the notion of sequential z-dominance is employed, every sequence of successive blocks surely leads to the core in a bounded number of steps. This result strengthens the accessibility of the core and naturally provides an upper bound for the number of blocks required to reach the core, which renes Kczys (2006, Theorem 3.3 and 3.5) results in two respects. First, o Kczys bound is not explicitly described, while our bound can be described o as the number of active coalitions 2 . Second, our bound is much lower than the one provided by Kczy. As Kczy (2006, p.59) points out, a lower bound o o 3 can make the algorithm mentioned in the third paragraph of this section more practical: The existence of a bound is encouraging, but it is very likely that the bound can be lowered. While boundedness allows us to dene primitive recursive algorithms for the intermediator to design the negotiation process, much lower bounds are required to make the algorithms practical. The paper is organized as follows. Section 2 introduces relevant denitions and notations. In Section 3, we apply the notion of sequential z-dominance to prove that the core is accessible in a strong sense. Finally, we study the number of steps needed to reach the core in Section 4.

An active coalition is a proper subset of the grand coalition that can guarantee each of its members a payo which is strictly individually rational. 3 See the proof of Theorem 3.5 in Kczy (2006, p.64). o

2

Preliminaries

A transferable utility game (henceforth a game) is a pair (N, v), where N = {1, 2, . . . , n} represents the set of players and v is a real-valued function dened on 2N satisfying v () = 0. A coalition is a nonempty subset of N . For any coalition S, let v (S) = v (N )v (N \S) denote its complementary value and let v = (v({1}), . . . , v({n})) denote the vector of stand alone values. For any vector x = (x1 , . . . , xn ) RN , x (S) is a shorthand for xi

iS

and let xS denote the projection of x on S. For any pair of vectors x, y RN , we write xS y S if xi y i for each i S. A coalition S N is said to be active if v (S) > v (S). Let (N, v) denote the number of active coalitions. A payo vector x RN is said to be individually rational if xi v ({i}) for every player i in N and ecient if x (N ) = v (N ). A payo vector is an imputation if it is individually rational and ecient. We denote by X (N, v) the set of imputations of a game (N, v). Given an imputation x X (N, v), the excess of a coalition S is dened to be e (x, S) = v (S) x (S) which can be considered as a measure of the dissatisfaction of coalition S with respect to the imputation x. The core of a game (N, v) is dened by C (N, v) = {x X (N, v) : e (x, S) 0 for all S N } . Let x, y X (N, v) and let S be a coalition. We say that x dominates y via S, denoted by x S y, if x (S) = v (S) > y (S) and xS y S . In that case we refer to S as a blocking coalition. Following Kczy (2006), we o call the transition from y to x a block and interpret it in a dynamic way as follows: Consider a payo vector y proposed as a solution for the game. If some coalition S can improve upon y, in order to obtain a higher aggregate payo, it may threaten to leave the grand coalition and thereby suggest an alternative proposal x to replace y. However, it seems unrealistic that the blocking coalition S owns such a strong power that it can determine the payos of the remaining players arbitrarily. One way to tackle the issue is to pre-decide a payo vector z as a bench mark and require that an acceptable counterproposal x should satisfy xN \S z N \S .4

4 A similar restriction of the dominance relation, known as the outsider independent dominance, has been introduced and studied by Kczy and Lauwers (2004, 2007). o

Now we consider what the qualications should be for such a bench mark. Combining individual rationality, feasibility and the myopic behavior of the players, a candidate z for a bench mark should be an imputation. Moreover, in case v (S) > z (S) for some coalition S, the employment of such a bench mark z will deprive coalition S of the chance to make a proposal since there is no imputation x satisfying x (S) = v (S) and xN \S z N \S simultaneously. In order to prevent this situation, we argue that a proper bench mark should be a core imputation. Following the analysis, an alternative notion of dominance is formulated as follows. Denition 1 Let x and y be imputations of a game (N, v) and let z C (N, v). We say that x dominates y via a coalition S with respect to z (x z-dominates y via S for short) if x S y and xN \S z N \S . We say that an imputation x is accessible from an imputation y if there exist a sequence of imputations {xj }l and a sequence of coalitions {Sj }l j=0 j=1 such that x = xl , y = x0 , and xj Sj xj1 for j = 1, . . . , l. In that case we call the sequence of successive blocks xl

Sl

xl1

Sl1

S1

x0

(1)

a dominating sequence of length l and interpret it as a bargaining process among the players. The process will come to an end if the last proposal cannot be improved upon by any coalitions. In other words, the process stops if and only if the proposal under consideration lies in the core. Moreover, the sequence (1) is called a z-dominating sequence if z is a core imputation and xj z-dominates xj1 via Sj for j = 1, . . . , l. Note that the bargaining may proceed in a roundabout way: Even if a coalition S makes a counterproposal at some step, it is possible that another coalition would propose an imputation that upsets S at some later step. Thus, S might become a blocking coalition twice or even more times in the process. An example is as follows. Example 2 Consider the three-player game in which each singleton has value zero, each pair gets 4 and the grand coalition obtains 6. Let z = (2, 2, 2), the unique core imputation, and for each positive integer j, let xj = 3 + 1 , 2, 1 1 , Sj = {1, 3} if j is odd and xj = 2, 3 + 1 , 1 1 , j j j j Sj = {2, 3} if j is even. Then the z-dominating sequence xl Sl xl1 Sl1 S2 x1 would never terminate in the core even if l tends to innity. In that case the bargaining process fails to produce a constructive result.

One way to avoid this kind of ineciency is to suggest that at each step in the bargaining process, a blocking coalition should take all former negotiations into consideration and thereby proposes a new payo allocation that does not make any of the past blocking coalitions worse o. Combining with the notion of z-dominance, we formulate a restrictive notion of dominance as follows. Denition 3 Given a core imputation z and a z-dominating sequence of the form (1), we say that an imputation xl+1 sequentially z-dominates xl via a coalition Sl+1 if xl+1 z-dominates xl via Sl+1 and it keeps all the former blocking coalitions and their complements satised in the sense that for j = 1, . . . , l, N \S xl+1 (Sj ) v (Sj ) and xl+1 j z N \Sj . (2) It is not dicult to observe that in case the notion of sequential zdominance is applied at each step of a z-dominating sequence, the blocking coalitions at each step of the process must be distinct.5 This means that the adoption of sequential z-dominance would force the bargaining to proceed more eciently and to generate a dominating sequence of length less than or equal to the number of active coalitions. The question is whether such a sequence does terminate in the core. In the next section, we shall answer it in the armative. An example may be helpful to see the impact of the notion of sequential z-dominance. Consider the game given in Example 2 and assume that the z-dominating sequence (2, 7/2, 1/2)

{2,3}

(4, 2, 0)

has been established. If the blocking coalition {1, 3} must issue an allocation satisfying the condition (2), then the unique core imputation z = (2, 2, 2) is the only choice.

A set of imputations is said to be accessible if for any imputation y , / there exists x such that x is accessible from y. In order to provide a dynamic foundation for the core, Sengupta and Sengupta (1996) shows that the core is accessible by proposing an algorithm that denes a nite sequence of successive blocks from any non-core imputation to the core. We summarize their algorithm (henceforth S-S-algorithm) in the following:

5

Input: A game (N, v) with a nonempty core and an initial imputation x0 C (N, v). / Step 1. Pick a core imputation z. Step 2. For each positive integer k do the following loop: (i) Choose a coalition Sk that maximizes the excess with respect to xk1 . (ii) Choose a player ik N \Sk such that xik = z ik . k1 (iii) Dene the imputation xk by i e(x ,S ) xk1 + k1| k , |Tk i xk1 , xi = k zi, i z + v (N ) v (Sk ) z (N \Sk ) , if if if if i Tk , i (Sk \Tk ) , i (N \Sk ) and i = ik , i = ik ,

where Tk = i Sk : xi < z i . k1 (iv) If xk C (N, v) exit loop. Else take the next integer k + 1. Step 3. Stop. Output: A dominating sequence of nite length that terminates in the core. In Sengupta and Sengupta (1996), the accessibility of the core is obtained by proving that the S-S-algorithm will not go in an innite loop. Remark 4 Note that for any core imputation z and for any coalition S, we have v (N ) v (S) z (N \S) = z (S) v (S) 0. This means that the notion of z-dominance is implicitly employed by Sengupta and Sengupta and the S-S-algorithm actually shows that for any arbitrary core imputation z, the core is accessible from any imputation via a z-dominating sequence. Regarding the S-S-algorithm, there are two features concern us. First, only the coalitions with the highest excess are allowed to make counterproposals. Second, the form of proposals oered at each step is very rigid. These restrictions cast a shadow on the possibility of convincing players to execute the S-S-algorithm in an actual bargaining situation. In order to provide a solid foundation for the accessibility of the core, we shall show that the process of successive blocks must terminate in the core if a core imputation z is chosen as a bench mark and the blocking coalitions oer counter proposals that sequentially z-dominate preceding ones at each step of the process.

Theorem 5 Consider a game with a nonempty core. The process of successive blocks must converge to a core imputation in a bounded number of steps if the notion of sequential z-dominance is adopted. The proof of Theorem 5 proceeds via the following lemma. Lemma 6 Let z be a core imputation of a game (N, v) and let xl be a z-dominating sequence. (a) If xl C (N, v) and xl sequentially z-dominates xl1 via Sl . Then for / any coalition Sl+1 with v (Sl+1 ) > xl (Sl+1 ), there exists an imputation xl+1 that sequentially z-dominates xl via Sl+1 . (b) If l 2 and xj sequentially z-dominates xj1 via Sj for j = 1, . . . , l. Then Sj = Sk for 1 j < k l. Proof. (a) Since xl sequentially z-dominates xl1 , we have (i) xl (Sj ) v (Sj ) for 1 j l, and (ii) xi z i for each i l

l l Sl

xl1

Sl1

S1

x0

(N \Sj ) = N \(

j=1 j=1

Sj ).

l+1

j=1 l+1 l

Sj = .

Indeed, if

j=1

Sj = then Sl+1 N \(

j=1

z (Sl+1 ) by the fact (ii). Since z C (N, v), this is impossible. We consider two cases.

l+1 l l+1 l

Case I.

j=1 l

Sj is a proper subset of

j=1

Sj , i.e.,

j=1

Sj

j=1

Sj . Then

(

j=1

v(Sl+1 )xl (Sl+1 )

l+1 j=1

Sj

, if i Sj ,

j=1

l+1

xi = l+1

if i Sl+1 \( Sj ),

j=1 z(Sl+1 )v(Sl+1 ) ( Sj )\Sl+1

j=1 l

if i ( Sj )\Sl+1 ,

j=1

(3)

if i N \(( Sj )

j=1

Sl+1 ).

l+1

Case II.

j=1

Sj =

j=1

v(Sl+1 )xl (Sl+1 )

j=1

xi l+1

xi + l

Sj

if i Sj ,

j=1 l

(4)

z(Sl+1 )v(S where 1 > tl+1 = z(Sl+1 )xl (Sl+1 )) 0. l+1 It is not dicult to check that, for both cases, xl+1

Sl+1

xl and xi l+1

z i for all i

l+1

l+1

j=1 l

j=1 l

Sj

j=1 l+1

l

j=1 j=1 l j=1

j=1 l j=1 j=1

j=1 l j=1 l j=1 l

j=1 j=1 j=1

j=1 j=1 j=1 j=1 l l l l

This implies xl+1 (Sk ) = xl+1 (Sk \(( Sj ) Sl+1 )) + xl+1 ( Sj ) + xl+1 ((Sk Sl+1 ) \( Sj ))

j=1 j=1 j=1 l l l

j=1 j=1 j=1

j=1 j=1 j=1

= xl (Sk ) v (Sk ) .

l+1 l

In case

j=1

Sj =

j=1

N \Sl+1

N \S

Moreover, (4) also implies xl+1 (N \Sl+1 ) = v (N ) v (Sl+1 ) . Combining (5) and (6), we obtain xl+1 (Sk \Sl+1 ) xl (Sk \Sl+1 ) v (Sl+1 ) + xl (Sl+1 ) and hence xl+1 (Sk ) = xl+1 (Sk \Sl+1 ) + xl+1 ((Sk Sl+1 )\( Sj )) + xl+1 ( Sj )

j=1 j=1 l l

(6)

j=1

j=1

j=1 j=1

= xl (Sk ) v (Sk ) . (b) We consider two cases. Case I. j = k 1. Since xk Sk xk1 and xk1 Sk1 xk2 , we have v (Sk ) > xk1 (Sk ) and v (Sk1 ) = xk1 (Sk1 ) and hence Sj = Sk1 = Sk . Case II. j < k 1. Since xk Sk xk1 and xk1 sequentially z-dominates xk2 , it follows that v (Sk ) > xk1 (Sk ) and xk1 (Sj ) v (Sj ). This also implies Sj = Sk . Now we are ready to prove Theorem 5. Consider a game (N, v) augmented with a core imputation z as a bench mark. Assume that a non-core imputation x0 is proposed. Since z C (N, v), we obtain that for any coalition S, v (N ) v (S) + z (N \S). This implies that for any coalition S1 with v (S1 ) > x0 (S1 ), there exists x1 X (N, v) such that x1 z-dominates x0 via S1 . Inductively, suppose that the z-dominating sequence xl

Sl

xl1

Sl1

S1

x0

has been established such that for j = 1, . . . , l, xj sequentially z-dominates xj1 via Sj . In case xl C (N, v). By Lemma 6 (a), any coalition Sl+1 / with v (Sl+1 ) > xl (Sl+1 ) can oer an imputation xl+1 that sequentially zdominates xl . Combining Lemma 6 (b) and the fact that the number of active coalitions is nite, the process must come to an end in a bounded number of steps. Thus, we obtain the desire result.

Following Sengupta and Sengupta (1996), Kczy (2006) also shows that the o accessibility of the core can be met in a bounded number of blocks. However, the bound is not explicitly described. We summarize a Kczys result in the o following. For any game (N, v), Kczy denes a classication of imputations as o follows. Imputations x and y are similar if for any coalition T and for all partitions {TF , TC , TS , TI } of T with TI = , and all partitions TC of TC : v (TF ) +

STC

STC

if and only if

v (TF ) +

This implies that for any coalition T and for any two similar imputations x and y, x (T ) v (T ) if and only if y (T ) v (T ) (7) Let (N, v) denote the number of similarity classes. Theorem 7 (Kczy, 2006, Theorem 3.3) Let (N, v) be a game with a o nonempty core. Then there exists a positive integer M (N, v) such that for any non-core imputation x, there exists a core imputation which is accessible from x via a dominating sequence of length at most M . Combining Theorem 5 and Lemma 6 (b), we obtain an alternative bound, namely, the number of active coalitions. Theorem 8 Let (N, v) be a game with a nonempty core. For any non-core imputation x, there exists a core imputation which is accessible from x via a dominating sequence of length at most (N, v). Given a game (N, v) with a nonempty core, by (7), it is not dicult to see that the number of active coalitions is much lower than (N, v) . Hence, (N, v) is a lower bound than the one M proposed by Kczy (2006). o However, can this bound be lowered? Consider the three-player game (N, v) given by v ({1, 2, 3}) = v ({1, 2}) = v ({1, 3}) = 2, v (S) = 0, otherwise.

10

It can be veried that (N, v) is exactly equal to the number of blocks needed to get from the imputation (0, 1, 1) to the unique core imputation (2, 0, 0). On the other hand, observe that the core of the game given in Example 2 can be reached from any non-core imputation through a dominating sequence of length at most two, while the number of active coalitions is three. The observation indicates that it remains an interesting issue to nd better bounds.

References

[1] Kczy, L.A., 2006. The core can be accessed with a bounded number of o blocks. J. Math. Econ. 43, 56-64. [2] Kczy, L.A., Lauwers, L., 2004. The coalition structure core is accessible. o Games Econ. Behav. 48, 86-93. [3] Kczy, L.A., Lauwers, L., 2007. The minimal dominant set is a non-empty o core-extension. Games Econ. Behav. 61, 277-298. [4] Sengupta, A., Sengupta, K., 1996. A property of the core. Games Econ. Behav. 12, 266-273.

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