I have been reviewing general equilibrium models and was trying to find an efficient method for computing the core of a cooperative game. I was taught this topic in a very poor way so I believe I still have some conceptual errors.
Here is a thought I had:
Suppose we are in an economy with three consumers, $A$, $B$, and $C$, with utility $u_{i}(x)$ defined over bundles $x \in \mathbb{R}^{2}$ and endowments $\omega_{i}$ for $i = A, B ,C$. I want to compute the core for this economy.
I know the core must satisfy: \begin{align} u_{A}(x_{A}) &\geq u_{A}(\omega_{A})\\ u_{B}(x_{B}) &\geq u_{B}(\omega_{B})\\ u_{C}(x_{C}) &\geq u_{C}(\omega_{C})\\ \end{align} i.e. the core must be individually rational. So let $$D =\{ x \in \mathbb{R}^{2} : x \text{ is individually rational for $A$, $B$ and $C$} \}$$ I also know that the core is a subset of the pareto efficient outcomes, so let $$E =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient} \}$$ Now here is the part I am not sure about: I know that the core is also not blocked by any two-person coalition. I think this means that any core allocation is pareto efficient for any two-person game. Thus I define: \begin{align} F_{1} =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient in the cooperative game with only $A$ and $B$ } \}\\ F_{2} =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient in the cooperative game with only $A$ and $C$ } \}\\ F_{3} =\{ x \in \mathbb{R}^{2} : x \text{ is pareto efficient in the cooperative game with only $B$ and $C$ } \} \end{align}
Here are my questions:
- Is the above analysis correct?
- Can I write the set of core allocations $\mathcal{C}$ as $$\mathcal{C} = D \cap E \cap F_{1} \cap F_{2} \cap F_{3}\text{?}$$
- Can this method of solving be generalized to a game with $n$ players and $m$ goods?
Let me know if anything is not clear!