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Cooperative game theory

Cooperative game theory is a branch of that models strategic interactions among rational agents who can form binding to achieve collective outcomes, with a primary focus on the fair allocation of the resulting payoffs or costs among coalition members. Unlike , which assumes no enforceable contracts and emphasizes individual strategies, cooperative game theory assumes binding agreements that enable coalition formation and group stability. The foundational representation of cooperative games is the , which assigns a value v(S) to every possible S of players, indicating the total or worth that coalition can generate on its own, with v(\emptyset) = 0. Games are broadly classified into transferable (TU) games, where the coalition's payoff can be arbitrarily divided among members (e.g., as ), and non-transferable (NTU) games, where payoffs are specified as sets of feasible utility vectors without free transferability. Key assumptions include the absence of externalities (coalition outcomes do not affect others' ) and the possibility of side payments in TU settings. Central to cooperative game theory are solution concepts that identify stable or equitable payoff distributions for the grand coalition (all players). The comprises allocations where the total payoff equals v(N) and no subcoalition S receives less than v(S), ensuring no group has incentive to deviate; it is non-empty for balanced games per the Bondareva-Shapley theorem. The provides a unique allocation by averaging each player's marginal contribution across all coalition orderings, satisfying axioms of , , dummy player zero payoff, and additivity. Other concepts include the , which lexicographically minimizes the maximum excess (dissatisfaction) of coalitions, and bargaining sets, which resist objections from blocking coalitions. Cooperative game theory originated in the 1944 seminal work Theory of Games and Economic Behavior by and , which laid the groundwork for analyzing n-person games and coalition stability. It has since been extended by contributions like the (1953) and applied across fields, including for cost-sharing and market design, for voting and alliance formation, for resource allocation, and for network cooperation and machine learning interpretability.

Fundamentals

Mathematical Definition

In cooperative game theory, a game is formally defined as a pair (N, v), where N is a finite set of players, typically denoted as N = \{1, 2, \dots, n\} for some positive integer n, and v is the characteristic function that assigns to each possible coalition of players a real-valued worth representing the total payoff or value that coalition can achieve on its own. This structure abstracts the strategic interactions among players by focusing on the collective outcomes of subsets, assuming that players can form binding agreements to cooperate without external enforcement issues being modeled explicitly. The theory primarily considers transferable utility (TU) games, in which the worth v(S) for a coalition S \subseteq N is assumed to be divisible in any manner among the members of S, allowing for flexible sharing of gains through side payments. The characteristic function is mathematically specified as v: 2^N \to \mathbb{R}, where $2^N denotes the power set of N (the collection of all subsets of N), and it satisfies the normalization condition v(\emptyset) = 0, indicating that the empty coalition generates no value. This setup emphasizes coalition formation as the central mechanism, with the worth v(S) capturing the maximum joint utility attainable by S independently of the remaining players. A simple illustrative example is the three-player majority game with N = \{1, 2, 3\}, where v(\{1\}) = v(\{2\}) = v(\{3\}) = 0, v(\{1,2\}) = v(\{1,3\}) = v(\{2,3\}) = 1, and v(\{1,2,3\}) = 1; here, any pair of players can generate a unit of value (e.g., by achieving a majority to produce output), but no single player can, and the full coalition yields the same as a pair.

Characteristic Function

In cooperative game theory, the characteristic function v plays a central role by assigning to each possible coalition S \subseteq N, where N is the finite set of players, a value v(S) that represents the maximum total payoff the members of S can jointly achieve through cooperation, assuming the coalition acts as a unified entity while outsiders may act adversely to minimize this payoff. This value encapsulates the coalition's independent bargaining power or productive capacity, independent of how the remaining players N \setminus S organize themselves. Formally, in transferable utility (TU) games, v: 2^N \to \mathbb{R} with v(\emptyset) = 0, where the payoff can be freely redistributed among coalition members via side payments. The interpretation of v(S) underscores the assumption that coalition S operates cohesively as a single decision-maker, optimizing its collective outcome against potential opposition from non-members, which simplifies the analysis of coalition formation and stability in n-person games. This formulation, introduced by and , allows the game's strategic structure to be reduced to coalition worths, facilitating the study of cooperative solutions without specifying full strategic interactions. Cooperative games extend beyond TU settings to non-transferable utility (NTU) games, where payoffs cannot be arbitrarily reallocated due to differing individual utilities or indivisibilities; here, the characteristic function v assigns to each S a comprehensive set v(S) \subseteq \mathbb{R}^{|S|} of feasible payoff vectors for the players in S, often assumed to be comprehensive (closed under reduction) and bounded. In NTU games, v(S) thus captures the set of all possible utility allocations achievable by S acting together, reflecting the coalition's joint opportunities without assuming a common numeraire. For illustration, consider a simple two-player bargaining game where players 1 and 2 must divide a unit resource; in the NTU formulation, v(\{1,2\}) = \{ (x,y) \in \mathbb{R}^2 \mid x \geq 0, y \geq 0, x + y \leq 1 \}, representing all non-negative divisions summing to at most 1, while singletons have v(\{i\}) = \{0\}. This example highlights how NTU structures preserve the heterogeneity of player preferences, generalizing TU games where such sets would collapse to scalar maxima like v(\{1,2\}) = 1.

Core Concepts

Coalitions and Imputations

In cooperative game theory, the set of players is denoted by N = \{1, 2, \dots, n\}. A coalition S \subseteq N is a subset of players who choose to cooperate, pooling their efforts to achieve a collective outcome that may exceed what they could obtain individually. The grand coalition N represents the scenario in which all players join forces, often serving as the benchmark for analyzing full cooperation in the game. The attainable by any S is given by the v(S), which quantifies the coalition's productive potential. An imputation provides a feasible way to distribute the grand coalition's v(N) among all players. Formally, an imputation x = (x_1, x_2, \dots, x_n) \in \mathbb{R}^N is a payoff vector satisfying group , ensuring the total payoff equals the grand coalition's value (\sum_{i \in N} x_i = v(N)), and individual , guaranteeing each player receives at least as much as they would alone (x_i \geq v(\{i\}) for all i \in N). These conditions ensure the distribution is both collectively efficient and personally acceptable to each participant. The set of all imputations for a given game is mathematically defined as A = \left\{ x \in \mathbb{R}^N \;\middle|\; \sum_{i \in N} x_i = v(N),\; x_i \geq v(\{i\}) \;\forall\; i \in N \right\}. For instance, consider a three-player game where v(N) = 1 and v(\{i\}) = 0 for each player i; the imputations then consist of all nonnegative payoff vectors (x_1, x_2, x_3) such that x_1 + x_2 + x_3 = 1.

Subgames

In cooperative game theory, a subgame is formed by restricting the original game to a of players, known as a S \subseteq N, where N is the full set. This subgame, denoted (S, v_S), retains the structure of a game but focuses exclusively on the players in S, with the v_S defined such that v_S(T) = v(T) for every T \subseteq S. This restriction preserves the original payoffs achievable by coalitions within S, effectively excluding the influence of players outside S. Subgames facilitate the decomposition of complex cooperative games into manageable components, enabling independent analysis of coalition dynamics within smaller groups. By isolating subsets of players, researchers can examine how internal cooperation functions without interference from the broader player set, which is particularly useful for understanding incremental coalition formation processes. This approach highlights the self-contained nature of subgroup interactions in larger strategic environments. For instance, in a four-player game with N = \{1, 2, 3, 4\} and characteristic function v, the subgame on coalition S = \{1, 2\} is (\{1, 2\}, v_S), where v_S(\{1\}) = v(\{1\}), v_S(\{2\}) = v(\{2\}), and v_S(\{1, 2\}) = v(\{1, 2\}). Here, players 3 and 4 are disregarded, allowing focused study of the potential cooperation between players 1 and 2 based solely on their joint and individual values from the original game.

Efficiency and Individual Rationality

In cooperative game theory, the efficiency axiom requires that any payoff distribution, or imputation, fully utilizes the created by the , meaning the sum of payoffs to all equals the coalition's total : \sum_{i \in N} x_i = v(N). This condition ensures no resources are left undistributed and no receives more than the output allows, embodying Pareto optimality where no can gain without another losing. Individual rationality complements efficiency by stipulating that each 's payoff must be at least as much as they could secure independently, formalized as x_i \geq v(\{i\}) for every i \in N. This axiom safeguards against exploitative allocations, guaranteeing that no participant is worse off by joining the than acting alone, thus promoting voluntary cooperation. Together, and individual rationality delineate the set of imputations, which consists of all payoff vectors x \in \mathbb{R}^N that satisfy both conditions and are thus feasible and acceptable to all . Imputations serve as the foundational domain for further solution concepts in cooperative games. For instance, in a symmetric three-player game where v(\{i\}) = 0 for each i and v(N) = 3, efficient imputations that equalize payoffs—such as (1, 1, 1)—distribute the total value evenly while respecting individual rationality. These axioms originated in the seminal work of and , who introduced them in their 1944 book Theory of Games and Economic Behavior as core principles for analyzing stable coalition outcomes.

Properties

Superadditivity

In cooperative game theory, superadditivity is a key property of the v that captures the benefits of coalition merging. A transferable utility (TU) game (N, v) is superadditive if, for any two disjoint coalitions S, T \subseteq N with S \cap T = \emptyset, the value of their union satisfies v(S \cup T) \geq v(S) + v(T). This inequality indicates that the joint coalition can achieve at least as much worth as the separate coalitions, reflecting synergies or in . The property has significant implications for coalition formation and stability. Superadditivity encourages players to build larger s, as merging disjoint groups never reduces total value, often leading to the prediction that the grand N will form in equilibrium. It is also essential for the non-emptiness of the core in certain classes of games, such as stochastic cooperative games, where superadditivity ensures stable allocations exist under specific probabilistic structures. A representative example is a production game where the is defined as v(S) = |S|^2 for any S \subseteq N, modeling quadratic from group size. To verify superadditivity, consider disjoint s S and T with sizes a = |S| and b = |T|. Then, v(S \cup T) = (a + b)^2 = a^2 + 2ab + b^2 \geq a^2 + b^2 = v(S) + v(T), since $2ab \geq 0. This basic inequality confirms the property holds, illustrating how merging amplifies output beyond additive summation.

Monotonicity

In cooperative game theory, a transferable utility game (N, v) is said to be monotone if the characteristic function v satisfies v(S \cup \{i\}) \geq v(S) for every S \subseteq N and every i \in N \setminus S. This condition is equivalent to v(S) \leq v(T) whenever S \subseteq T \subseteq N, ensuring that the value of a coalition does not decrease upon enlargement. The monotonicity property implies that the marginal contribution of any i to a S, given by v(S \cup \{i\}) - v(S), is non-negative, reflecting positive complementarity among players. This feature is common in economic models of production or , where additional participants enhance overall or output without in the basic setup. A representative example arises in cost-sharing games, such as public goods provision, where the coalition value is v(S) = f(|S|) and f is an increasing function capturing total benefits or cost savings that grow with group size; the game is provided f is non-decreasing. Monotonicity represents a weak form of in games: while a convex game requires supermodularity—i.e., non-decreasing marginal contributions, v(S \cup \{i\}) - v(S) \leq v(T \cup \{i\}) - v(T) for S \subseteq T and i \notin T—monotonicity merely demands these contributions to be non-negative, making it a less restrictive .

Properties of Simple Games

A simple game is defined as a pair (N, W), where N is a of players and W \subseteq 2^N \setminus \{\emptyset\} is the collection of winning coalitions, with the grand coalition N \in W, and typically no \{i\} \in W for any i \in N (excluding ). This structure abstracts situations where coalitions either succeed or fail without intermediate payoffs, such as in systems or decisions. A fundamental of simple games is monotonicity, which states that if S \in W and S \subseteq T \subseteq N, then T \in W. This ensures that enlarging a winning coalition cannot make it losing, reflecting the non-decreasing nature of coalition power in such models. Minimal winning coalitions form another key , defined as the sets S \in W such that no proper of S is in W. These minimal sets capture the irreducible combinations needed for success and serve as the foundational elements for analyzing 's structure, often used to represent the game compactly via their blocker or dual. A representative example is the majority voting game, where |N| is odd and W consists of all coalitions S \subseteq N with |S| \geq (|N| + 1)/2. Here, minimal winning coalitions are precisely the sets of size (|N| + 1)/2, illustrating how simple games model parliamentary or electoral procedures.

Connections

Relation to

Cooperative game theory and represent two foundational branches of , distinguished primarily by their assumptions about interactions and enforceable commitments. In cooperative game theory, are assumed to form coalitions with binding agreements that enforce , allowing the to focus on the of joint gains among coalition members rather than individual strategic choices. This approach models scenarios where external mechanisms, such as contracts or social norms, ensure that agreements are upheld, emphasizing coalition values and fair divisions. In contrast, examines situations where cannot make enforceable commitments and must anticipate others' actions through individual strategies, leading to solution concepts like the , where no benefits from unilaterally deviating given others' strategies. These differences highlight cooperative theory's normative focus on achievable joint outcomes versus non-cooperative theory's positive of strategic incentives without binding enforcement. Cooperative game theory was formalized in the 1944 book Theory of Games and Economic Behavior by and , building on von Neumann's 1928 for two-person zero-sum games. Non-cooperative game theory was advanced by in his 1950 paper on equilibrium points in n-person games, which established the as a key tool for non-binding strategic interactions. Bridges between the two theories exist through extensions of non-cooperative models that incorporate limited communication or correlation, such as correlated equilibria, where players can coordinate actions via external signals without binding contracts, potentially replicating cooperative payoffs. For instance, in the —a canonical example—non-cooperative analysis predicts mutual defection as the unique , yielding suboptimal payoffs for both players, whereas cooperative theory permits binding agreements that enforce mutual cooperation and achieve the Pareto-superior outcome. This contrast illustrates how cooperative assumptions enable outcomes unattainable in purely non-cooperative settings, though real-world applications often blend elements of both to model partial enforceability. Cooperative game theory exhibits strong connections to combinatorial optimization through the structure of characteristic functions and solution concepts like the core. In combinatorial optimization games, the value v(S) of a coalition S is defined as the optimal value of a combinatorial optimization problem restricted to the players in S, such as maximum matching or minimum covering in a graph induced by S. This formulation allows the game's payoffs to be derived directly from optimization objectives, bridging the two fields. The core of such a game, which consists of imputations x satisfying \sum_{i \in S} x_i \geq v(S) for all coalitions S \subseteq N and \sum_{i \in N} x_i = v(N), can be interpreted as the feasible region of a linear program (LP) where the inequalities correspond to coalition constraints and the characteristic values v(S) serve as right-hand sides. This LP perspective highlights similarities, as verifying core membership or emptiness reduces to solving LPs augmented with oracles for evaluating v(S), much like dual optimization in combinatorial problems. Despite these analogies, key differences persist. primarily seeks to maximize or minimize an objective over feasible actions, focusing on efficiency, whereas cooperative games emphasize equitable payoff distribution among agents while ensuring stability against deviations. In optimization, the emphasis is on algorithmic solvability for the grand coalition's value v(N), but in games, the challenge lies in imputing shares that respect all subcoalition values, often requiring separation over exponentially many constraints. A prominent example is the assignment game, where two sets of agents (e.g., buyers and sellers) form bilateral matches with given profits, and v(S) is the maximum-weight bipartite matching value for coalition S. Here, allocations correspond precisely to the competitive equilibria of the associated , where payoffs represent equilibrium prices and rents, ensuring no blocking pairs. Post-2000 developments have advanced computational tractability for cores in combinatorial games. For instance, formulations have enabled improved algorithms for checking core nonemptiness and finding core elements in classes like matching and covering games, leveraging the underlying optimization structure. In specific subclasses, such as b-matching games on bipartite graphs, polynomial-time separation oracles exist for the , allowing efficient computation via the or direct combinatorial algorithms. These advances underscore how optimization techniques facilitate solving cooperative solution concepts, particularly when the game's values admit efficient evaluation.

Solution Concepts

Stable Set

The stable set, introduced by and as a solution concept for cooperative games, identifies a collection of imputations that cannot be internally undermined and collectively blocks all alternative imputations. This set-valued solution aims to capture stable social outcomes where coalitions cannot improve upon the selected allocations without facing counter-blockades from within the set. Imputations, as defined in the context of coalitions, form the universe from which stable sets are drawn, ensuring efficiency and individual rationality. Formally, for a transferable utility game (N, v), a stable set \phi \subseteq A—where A denotes the set of imputations—satisfies internal stability and external stability. Internal stability requires that for all x, y \in \phi, x does not dominate y. External stability requires that for every y \notin \phi, there exists some x \in \phi such that x dominates y. Domination is defined via coalitions: an imputation x dominates y through a coalition S \subseteq N if \sum_{i \in S} x_i \leq v(S) (feasibility for S under x) and x_i > y_i for all i \in S (strict improvement for every member of S). The domination relation can be expressed as follows: x dominates y if there exists S \subseteq N \setminus \{j \mid x_j \leq y_j\} such that \sum_{i \in S} x_i \leq v(S) \quad \text{and} \quad x_i > y_i \ \forall i \in S. This ensures the S can credibly enforce x over y by reallocating payoffs internally while making all participants strictly better off. Stable sets do not always exist; for instance, William F. Lucas constructed a 10-player in which no stable set satisfies both stability conditions. Moreover, when stable sets exist, a game may admit multiple such sets, reflecting different possible structures. In games, stable sets often correspond to allocations that distribute power according to indices like the , where minimal winning coalitions—such as pairs in a three-player game—equally share the value while excluding the loser. For example, in the three-player majority game with v(\{1,2\}) = v(\{1,3\}) = v(\{2,3\}) = v(N) = 1 and v zero otherwise, one stable set is \{(0.5, 0.5, 0), (0.5, 0, 0.5), (0, 0.5, 0.5)\}, capturing symmetric power distribution among voters.

Core

In cooperative game theory, the core represents a solution concept that identifies allocations stable against deviations by any coalition of players. For a transferable utility (TU) game defined by a player set N and characteristic function v: 2^N \to \mathbb{R}, the core consists of all imputations—feasible and individually rational payoff vectors x \in \mathbb{R}^N satisfying \sum_{i \in N} x_i = v(N) and x_i \geq v(\{i\}) for all i \in N—such that no coalition can improve its total payoff by acting independently. Formally, the core C(v) is the set C(v) = \left\{ x \in A \ \middle|\ \sum_{i \in S} x_i \geq v(S) \ \forall S \subseteq N \right\}, where A denotes the set of imputations. This definition, introduced by Gillies, emphasizes group rationality by ensuring that the allocation to any coalition S meets or exceeds what S could achieve alone, thereby preventing blocking by deviations. The core possesses key geometric properties: it is a closed and convex set, as it arises from the intersection of half-spaces defined by the coalition inequalities and the efficiency constraint. An empty core signals inherent instability, where no allocation can satisfy all coalition demands simultaneously; for instance, in essential constant-sum games—where v(S) + v(N \setminus S) = v(N) for all S and v(N) > 0—the core is always empty, as the fixed total payoff cannot accommodate all blocking threats without violation. In market games modeling exchange economies with , the core coincides with the set of competitive equilibria under appropriate conditions, such as when utilities are transferable and agents have quasi-concave preferences; here, core allocations represent prices and payoffs where no group of traders can renegotiate for mutual gain outside the . The Bondareva-Shapley theorem provides a precise condition for non-emptiness: the core C(v) is nonempty the game is balanced, meaning there exists no collection of coalitions with weights \{\beta_S\}_{S \subseteq N, S \neq \emptyset} such that $0 \leq \beta_S \leq 1 for all S, \sum_{S \ni i} \beta_S = 1 for all i \in N, and \sum_{S \subseteq N} \beta_S v(S) > v(N). This duality-based characterization, proven independently by Bondareva and Shapley, highlights that superadditivity—where v(S \cup T) \geq v(S) + v(T) for disjoint S, T—is necessary but insufficient for a nonempty core.

Epsilon-Core Variants

In cooperative game theory, the epsilon-core variants provide relaxations of the strict core concept, allowing for approximate stability in situations where the exact core may be empty. These variants introduce a small positive parameter ε to tolerate minor deviations from coalition values, making them particularly useful for analyzing games with limited side payments or indivisibilities that lead to empty cores. The strong epsilon-core, for a transferable utility game (N, v) with imputation set A, is defined as the set of imputations x ∈ A such that ∑_{i ∈ S} x_i ≥ v(S) - ε for all coalitions S ⊆ N and ε > 0. The least core represents the tightest such relaxation, defined as the strong epsilon-core for the minimal ε* > 0 where the set is non-empty, formally ε* = min { ε ≥ 0 | ∃ x ∈ A with ∑_{i ∈ S} x_i ≥ v(S) - ε ∀ S ⊆ N }. This minimal ε* quantifies the degree of instability in the game, and the least core itself is always non-empty for any finite cooperative game, as it can be found by solving a linear program that minimizes the maximum excess over coalitions. As ε approaches 0, the epsilon-core contracts to the core when the latter is non-empty, providing a continuity property that links approximate solutions to exact ones. A key property of these variants is their guaranteed existence even in unbalanced games, contrasting with the core's potential emptiness; for instance, in a three-player game where v({1,2}) = 2, v({1,3}) = 2, v({2,3}) = 2, v({i}) = 0, and v(N) = 2, the core is empty due to conflicting coalition demands (the pair inequalities imply ∑ x_i ≥ 3 > 2 = v(N)), but the least core contains imputations like (2/3, 2/3, 2/3) with ε* = 2/3. In exchange economies, the least core allocations approximate competitive equilibria, especially in large economies where small ε values capture near-equilibrium outcomes without requiring perfect balance.

Shapley Value

The Shapley value, introduced by in 1953, is a fundamental solution concept in cooperative game theory that fairly allocates the total value generated by a among its members based on their average marginal contributions. It provides a unique imputation for transferable utility games by considering all possible orders in which players might join a , rewarding each player for the incremental value they add at each step. This approach ensures an equitable distribution that respects the game's structure without requiring negotiations over specific coalition formations. Formally, for a transferable utility game (N, v) with player set N and characteristic function v, the Shapley value \phi_i(v) for player i \in N is defined as the average marginal contribution of i across all permutations of the player set: \phi_i(v) = \frac{1}{|N|!} \sum_{S \ni i} (|S|-1)! \cdot (|N| - |S|)! \cdot [v(S) - v(S \setminus \{i\})], where the sum is over all coalitions S \subseteq N containing i, and S \setminus \{i\} denotes the coalition without i. This formula equivalently averages the marginal contributions over all possible orders of coalition formation, weighting each equally. The Shapley value is uniquely characterized by four axioms:
  • Efficiency: The sum of the values allocated to all players equals the value of the grand coalition, \sum_{i \in N} \phi_i(v) = v(N). This ensures the total payoff is fully distributed without surplus or deficit.
  • Symmetry: If two players i and j make identical marginal contributions to every coalition, then \phi_i(v) = \phi_j(v). This treats indistinguishable players equally.
  • Dummy player: If a player i contributes nothing to any coalition, meaning v(S \cup \{i\}) - v(S) = 0 for all S \subseteq N \setminus \{i\}, then \phi_i(v) = 0. This assigns zero value to non-contributors.
  • Additivity: For two games (N, v) and (N, w), the value of the sum game (N, v + w) is the sum of the values, \phi_i(v + w) = \phi_i(v) + \phi_i(w) for all i. This allows decomposition of complex games into simpler ones.
Shapley proved that these axioms uniquely determine the value function, making it the only solution satisfying all four simultaneously. A simple example illustrates the in a three-player game, where v(S) = 1 if |S| = 3 and v(S) = 0 otherwise. Here, each player's marginal contribution is 1 only when they are the last to join, which occurs in one-third of the six possible orders for each player. Thus, the Shapley value assigns \phi = (1/3, 1/3, 1/3), equally sharing the grand coalition's value. The always satisfies efficiency by construction. In monotone games—those where v(S) \leq v(T) for S \subseteq T—it also ensures individual rationality, \phi_i(v) \geq v(\{i\}) for all i, making it an imputation; monotonicity guarantees non-negativity of allocations when singleton values are zero. Its uniqueness stems directly from the axiomatic characterization, distinguishing it as a fair division rule in cooperative settings.

Kernel and Nucleolus

The of a cooperative game is a set-valued solution concept that seeks to balance the between pairs of s by equalizing their potential objections against each other. Formally, for a transferable utility game (N, v) with imputation set X(N, v), the excess of i against j with respect to an imputation x is defined as e(x, i, j) = \max_{S \subseteq N \setminus \{j\}, i \in S} [v(S) - x(S)], where the maximum is taken over coalitions containing i but not j. The K(N, v) consists of all imputations x \in X(N, v) such that e(x, i, j) \leq e(x, j, i) for every pair of distinct s i, j \in N. This pairwise balance ensures that no has a strictly stronger objection against another, promoting through bilateral equity. The was introduced by and Maschler in their seminal work on bargaining sets. Key properties of the kernel include its individual under superadditivity (where v(S \cup T) \geq v(S) + v(T) for disjoint S, T), its containment within whenever is nonempty, and its consistency with respect to reduced games. However, unlike some other solution concepts, may be empty in certain games, particularly those without sufficient or structure to balance all pairwise excesses. always lies within when the latter is nonempty, highlighting 's role as a superset that refines further. The nucleolus is a single-valued solution concept that minimizes dissatisfaction across all coalitions in a lexicographic manner, providing a unique and robust allocation even when other sets like the core are empty. For an imputation x, the excess of a coalition S is e(x, S) = v(S) - x(S), representing the amount by which the coalition is underpaid relative to its worth. The excess vector \theta(x) is the vector of these excesses for all nonempty coalitions S \subsetneq N, sorted in nonincreasing order. The nucleolus \eta(N, v) is the unique imputation that lexicographically minimizes \theta(x): it first minimizes the maximum excess, then the second-highest excess among the remaining options, and so on. This process was formalized by Schmeidler as a way to prioritize the welfare of the most dissatisfied coalitions iteratively. The nucleolus possesses several desirable properties: it is always nonempty and unique for games with nonempty imputations, individually rational under superadditivity, covariant under strategic equivalence, anonymous (treating symmetric players equally), and contained in the core whenever the core is nonempty. It also coincides with the kernel in symmetric games and serves as a refinement of epsilon-core variants by minimizing excesses globally rather than at a fixed level. In the classic glove market game, where players are divided into left-glove owners L and right-glove owners R with |L| = |R| = m and v(S) = \min(|S \cap L|, |S \cap R|), the nucleolus allocates $1/2 to each player, thereby equalizing the surpluses and reflecting balanced bargaining power in the bilateral market. This example illustrates how the nucleolus achieves fairness by ensuring no coalition type dominates in dissatisfaction.

Harsanyi Dividend

The Harsanyi dividend provides a unique decomposition of a transferable utility (TU) game into a of games, offering a foundational tool for analyzing values and computing solutions. Introduced by in his bargaining model, this approach expresses the v of a game (N, v) as v = \sum_{T \subseteq N} \Delta_v(T) u_T, where u_T is the game defined by u_T(S) = 1 if T \subseteq S and $0 otherwise, and \Delta_v(T) denotes the Harsanyi for T. This decomposition isolates the "pure" marginal contribution attributable to each possible , facilitating insights into structures without assuming specific payoff distributions. The dividends are computed recursively starting from singleton coalitions. For |T| = 1, \Delta_v(T) = v(T); for larger T, \Delta_v(T) = v(T) - \sum_{U \subsetneq T} \Delta_v(U), ensuring that the value of T is adjusted by subtracting the dividends of its proper subsets. Equivalently, via inversion on the , the explicit formula is \Delta_v(T) = \sum_{S \subseteq T} (-1)^{|T| - |S|} v(S), which leverages inclusion-exclusion to recover the unique coefficients in the basis. This decomposition directly relates to solution concepts like the , where the payoff to i is \phi_i(v) = \sum_{T \ni i} \frac{\Delta_v(T)}{|T|}, distributing each dividend equally among the members of the that generates it. For a simple example, consider a two-player game where v(\{1,2\}) = 1 and v(S) = 0 for all other S \subseteq \{1,2\}; then \Delta_v(\{1\}) = 0, \Delta_v(\{2\}) = 0, and \Delta_v(\{1,2\}) = 1, reflecting the pure value created by the grand as a game itself.

Special Game Classes

Convex Games

In cooperative game theory, a transferable utility game (N, v) is defined as convex if the marginal contribution of any player i \in N to a coalition is non-decreasing in the size of the coalition they join. Formally, for all S \subseteq T \subseteq N \setminus \{i\} with i \notin T, the inequality v(S \cup \{i\}) - v(S) \leq v(T \cup \{i\}) - v(T) holds. This condition, equivalent to the v being supermodular—satisfying v(S) + v(T) \geq v(S \cap T) + v(S \cup T) for all S, T \subseteq N—captures scenarios where incentives to cooperate strengthen as coalitions grow larger. The marginal contribution of i to coalition S, denoted \Delta_i(S) = v(S \cup \{i\}) - v(S), is thus non-decreasing in S with respect to set inclusion. Convex games exhibit several desirable properties that ensure stability and fairness in coalition formation. The core of a convex game is always non-empty, providing a robust set of imputations where no coalition has incentive to deviate. Furthermore, the , which allocates payoffs based on average marginal contributions across all possible coalition orders, lies within the core of any convex game, guaranteeing its stability under this solution concept. Convex games are also totally balanced, meaning that the core of every (restriction to any subset of players) is non-empty, which extends the stability guarantee to all possible player subgroups. A representative example arises in cost allocation problems, where the is defined as v(S) = -c(S) for a S \subseteq N, with c(S) representing the incurred by S. The resulting game is if c is submodular, satisfying c(S) + c(T) \leq c(S \cup T) + c(S \cap T) for all S, T \subseteq N, which reflects decreasing marginal costs as coalitions expand—a common feature in resource-sharing scenarios like infrastructure development. For instance, in the airport runway cost game, longer runways required for larger aircraft impose submodular costs, making the game convex and ensuring a non-empty core for equitable cost sharing. Beyond , games connect to optimization frameworks through their via Choquet integrals, where the supermodular aligns with capacities, facilitating the of values like the as integrals over interaction measures. This linkage underscores their utility in algorithmic approaches to optimization.

Simple Games with Preferences

Simple games form a fundamental class of games in which the assigns a value of 1 to winning coalitions and 0 to losing ones, often modeling systems where coalitions either pass or fail proposals. When players possess ordinal preferences over a set of alternatives, the shifts from payoff-based to preference-based blocking, incorporating relational structures rather than numerical utilities. In this framework, each player i holds a total preorder (or strict total order) on the set of alternatives X, representing their ranking of possible outcomes without interpersonal comparisons. These preferences capture ordinal intensities, allowing players to express strict or weak preferences over outcomes, such as policy proposals in a voting context. The core with respect to preferences, introduced by Nakamura, consists of all alternatives x \in X such that no winning coalition S blocks x by unanimously preferring some alternative y \neq x over it; formally, there exists no S \in \mathcal{W} (the set of winning coalitions) and y \in X where y \succ_i x for all i \in S. This relational definition generalizes the standard core in simple games, which relies on veto players for nonemptiness, as the preference-based core can be nonempty even without vetoers if preference profiles satisfy acyclicity conditions. Key properties include potential differences from the classical core: while the standard core in simple games is either a singleton (the grand coalition payoff) or empty absent veto players, the preference-based core may contain multiple alternatives and emphasizes unanimous coalition preferences over aggregate gains. For instance, under intermediate preferences—where rankings between distant alternatives align consistently with intermediate ones on median graphs (e.g., trees or hypercubes)—the dominance relation induced by blocking is acyclic, guaranteeing a nonempty core. This setup is particularly useful in voting models with ordinal intensities, where it ensures stable outcomes resistant to strategic deviations by winning majorities, as in strategy-proof majority rules for odd-sized electorates. A representative example arises in weighted voting games, a subclass of simple games defined by a quota q and player weights w_i such that a coalition S wins if \sum_{i \in S} w_i \geq q. Here, the core with respect to preferences comprises outcomes unblockable by any weighted majority; for instance, in a [51: 49, 26, 25] game modeling a legislative body, an outcome like a balanced policy is in the core if no coalition exceeding 51 weight units unanimously prefers an alternative that shifts power disproportionately, thereby respecting implicit power weights derived from the structure.

Market and Firm Games

In cooperative game theory, a firm is modeled as a transferable utility game (N, v), where N is the set of players representing such as workers, managers, or capital owners, and v(S) denotes the maximum that coalition S \subseteq N can achieve through joint production and sale of output using their pooled resources. This framework captures the essence of intrafirm cooperation, where v(S) is typically determined by solving an , such as a linear maximizing minus costs given the coalition's input endowments. Seminal formalizations of this approach build on Ronald Coase's 1937 paper "The Nature of the Firm". Such firm games often exhibit convexity, where the v satisfies v(S \cup \{i\}) - v(S) \leq v(T \cup \{i\}) - v(T) for S \subseteq T \subseteq N \setminus \{i\}, implying that marginal contributions are nondecreasing and encouraging formation. The of these games, defined as the set of allocations x \in \mathbb{R}^N such that \sum_{i \in S} x_i \geq v(S) for all S \subseteq N, \sum_{i \in N} x_i = v(N), and x_i \geq v(\{i\}) for all i \in N, represents stable profit-sharing schemes—like wages or dividends—that no can improve upon by deviating. In linear games, a common subclass modeling firms with multiple resources and products, the core is nonempty and corresponds to the optimal dual solutions of the production linear program, ensuring competitive imputations akin to market-clearing prices. These properties align with broader game structures, facilitating stable organizational outcomes. For firms or markets with continuously many players, such as large-scale production with divisible inputs, the Aumann-Shapley value extends the discrete Shapley value to nonatomic games, allocating payoffs proportionally to marginal contributions along measure-theoretic rays: for a game v on (M, \mu) with \mu(M)=1, the value \phi_i(v) = \int_0^1 \frac{\partial v(t a)}{\partial a_i}(t) \, dt where a is the density vector. This yields equitable cost or in models of firms. A representative example is an oil production game, where players possess complementary resources like drilling rigs and land leases; v(S) equals the maximized profit from optimally combining S's assets to extract and sell oil, often via a linear program subject to resource constraints and market prices. The core then delineates feasible royalty or partnership shares that sustain the against breakup, mirroring real-world joint ventures.

Applications and Extensions

Economic and Organizational Applications

Cooperative game theory has been applied to cost-sharing problems in economic settings, particularly in infrastructure development. A seminal example is the airport problem, where the cost of building a must be allocated among airlines based on their sizes, ensuring that no of airlines pays more than their standalone cost. In this model, the provides a fair allocation by minimizing the maximum dissatisfaction among coalitions, as demonstrated in the analysis of landing fees. This approach ensures stability by guaranteeing that the allocation lies in , preventing any group from opting out. In organizational contexts, such as mergers and alliances, the core concept assesses the stability of cooperative arrangements. Airline alliances can be modeled as transferable utility (TU) games, where the core identifies imputations that prevent any subgroup of airlines from disbanding to achieve higher profits independently. Revenue-sharing mechanisms based on the core promote long-term cooperation by equitably distributing joint revenues from code-sharing and network expansion, reducing defection risks in competitive markets. Bankruptcy problems, where a limited estate must be divided among creditors with claims exceeding the assets, are another key application, with solutions drawn from cooperative game theory. The rule, an ancient division method from the Babylonian , coincides with the of the associated game, prioritizing equal division of contested amounts while respecting individual claims up to half their value. This equivalence ensures the allocation minimizes excess supply dissatisfaction across coalitions, providing a and axiomatic solution for modern proceedings. The has been employed in international negotiations to fairly allocate benefits or costs among participating nations. For instance, in negotiations over reduction targets, the distributes the total abatement costs based on each country's marginal contribution to coalitions, promoting equitable burden-sharing in agreements like those addressing transboundary . In recent years, particularly in the 2020s, climate agreements such as the have been modeled as games to analyze coalition stability and cost allocation. These models use solution concepts like and to evaluate the feasibility of global emission reductions, highlighting how side payments can sustain large coalitions despite free-rider incentives.

Political and Social Applications

Cooperative game theory has been extensively applied in to analyze power distribution in systems and legislatures. In games, which model processes where players form to achieve outcomes, the Shapley-Shubik power index measures the marginal contribution of each voter to winning coalitions, providing a probabilistic assessment of influence in bodies like parliaments. Similarly, the Banzhaf index quantifies power by counting the number of critical swings a player provides in , revealing disparities in voting power that may not align with nominal representation; for instance, in the U.S. , it has shown that smaller states hold disproportionate sway compared to population-based shares. These indices, rooted in simple games where outcomes are binary (pass or fail), highlight how formation affects legislative . In federal systems, the core concept from cooperative game theory is used to evaluate stable resource allocations among states or regions, ensuring no coalition of entities can improve its outcome by reallocating resources independently. This approach has been applied to , where the core identifies allocations that are immune to deviations by subsets of states, promoting equitable distribution of national revenues; for example, in the , core analysis has informed debates on budget contributions and rebates to maintain stability. sets, another solution concept, extend this by identifying sets of imputations that are internally consistent and externally , applied to coalition governments where parties negotiate positions without fear of breakdown. In the context of EU voting, qualified majority rules have been modeled as cooperative games to assess the power of member states under the Nice Treaty and Treaty reforms, showing shifts in influence post-enlargement. Social applications of cooperative game theory intersect with , particularly in problems where the solution minimizes dissatisfaction by lexicographically reducing the maximum excess of coalitions, providing stable outcomes in resource distribution among agents with conflicting preferences. This has implications for social welfare programs, where the ensures balanced divisions of public goods.

Computational and Algorithmic Aspects

The of a cooperative game can be characterized and checked for non-emptiness using formulations. A standard feasibility linear program for the core is given by minimizing 0 subject to the constraints \sum_{i \in S} x_i \geq v(S) for all coalitions S \subseteq N, \sum_{i \in N} x_i = v(N), and x_i \geq v(\{i\}) for all i \in N, where x = (x_1, \dots, x_n) is the imputation vector. Determining whether this program has a feasible solution is coNP-complete in general. The , as a lexicographic , can be computed via sequential linear programs solved using the simplex method. This involves iteratively minimizing the maximum dissatisfaction over coalitions until the solution stabilizes. Computing exact solution concepts like the is #P-complete, even for succinctly represented . For large numbers of players n, approximation algorithms provide efficient alternatives, such as sampling methods that achieve additive error with high probability using O(n^2 / \epsilon^2) evaluations of the . In coalitional skill games, a succinct model for AI applications like multi-agent team formation, the can be approximated using greedy algorithms that iteratively select high-marginal-contribution coalitions. Recent advances include quantum algorithms for estimating the , offering quadratic speedups over classical sampling via amplitude estimation techniques. methods, such as neural networks trained on sampled coalitions, enable imputation of missing values to approximate solutions in high-dimensional games. As of 2025, cooperative game theory has seen increased application in AI fairness for model interpretability and in modeling allocations for . Harsanyi dividends provide a computational decomposition of the characteristic function into unanimity games, facilitating exact calculation of the Shapley value. Computational aspects are emerging in blockchain consensus mechanisms, where proof-of-stake protocols are modeled as simple cooperative games to allocate rewards fairly using core or Shapley-based solutions.

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