Working Papers, Department of Economics, Lund University
Cycles and Third-Party Payments in the Partnership Formation Problem
Abstract: We characterize the core of the partnership formation
problem (Talman and Yang, Journal of Mathematical Economics 47, 2011) using
cycles in the solution of a linear programming problem. The cycles also
lead us to a new and intuitive sufficient condition for the existence of
equilibrium, generalizing known results. We then introduce the
partnership-stable equilibrium, a weakened solution concept in the sense
that each equilibrium is also a partnership-stable equilibrium, and find
sufficient and necessary conditions for its existence. Finally, we conduct
a simulation study to see how often existence is an issue and which factors
affect the rate at which problems have solutions.
Keywords: Partnership; equilibrium; linear programming; cycles; third-party payments; (follow links to similar papers)
JEL-Codes: C62; D02; D60; (follow links to similar papers)
19 pages, May 30, 2013
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