Game Theory and Public Policy, SECOND EDITION
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Game Theory and Public Policy, SECOND EDITION

Roger A. McCain

This book provides a critical, selective review of concepts from game theory and their applications in public policy, and further suggests some modifications for some of the models (chiefly in cooperative game theory) to improve their applicability to economics and public policy.
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Chapter 12: What coalitions will be formed?

Roger A. McCain


Chapter 11 explored the cooperative decisions of an existing coalition for production and exchange. Following the logic of backward induction, this chapter addresses the prior question: what coalitions will be formed? For the purposes of this part of the book, that question has two parts: (1) within a given set of information-sharing links, some feasible coalitions may nevertheless be inconsistent. For example, a particular agent cannot both be included and excluded from a particular coalition. Thus, the first question is: which of these coalitions will form? (2) What will influence or determine the links that are formed and maintained? In addressing the first question we will again draw on ideas from cooperative game theory, in the broad tradition of the theory of the core; for the second, noncooperative game theory and random processes.

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