The Emergence Of Cooperation: An Inquiry Into The Stochastic Stability Of The Core

 

Sohei Kaihatsu & Petros Milionis

 

   The techniques of Stochastic Stability have been proven in the past remarkably useful in obtaining equilibrium refinement results in Economics, especially in Non-Cooperative Game Theory. With that mind Serrano & Volij (EJ, forthcoming) employed a dynamic trading process, in the spirit of the Edgeworthian Recontracting, and using similar techniques looked into the possibility of refinement results in the context of Cooperative Game Theory, focusing on the solution concept of the Core. However, their results came out mixed and depending on the nature of the agents' preferences. Applying a novel, highly computational, method we revisit the findings of Serrano & Volij, reassess the stochastic stability of the Core as a solution concept and characterize the long-run probabilities of core as well as non-core allocations, using the exact stochastically stable distribution of the process. Based on our simulation results, we attempt to identify, via a series of examples, the underlining forces of coalitional recontracting that determine the stochastic stability of any particular allocation.