Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2013:16: Cycles and Third-Party Payments in the Partnership Formation Problem

Jens Gudmundsson ()
Additional contact information
Jens Gudmundsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

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

JEL-codes: C62; D02; D60

19 pages, May 30, 2013

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