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Stochastic stability in coalitional bargaining problems

Sawa, Ryoji (2014): Stochastic stability in coalitional bargaining problems.

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Abstract

This paper examines a dynamic process of n-person coalitional bargaining problems. We study the stochastic evolution of social conventions by embedding a static bargaining setting in a dynamic process; Over time agents revise their coalitions and surplus distributions in the presence of stochastic payoff shocks which lead agents to make a suboptimal choice. Under a logit specification of choice probabilities, we find that the stability of a core allocation decreases in the wealth of the richest player, and that stochastically stable allocations are core allocations which minimize the wealth of the richest.

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