Extensions of the Shapley value for Environments with Externalities

• Authors: David Pérez-Castrillo.
• BSE Working Paper: 110476 | November 17
• Keywords: shapley value , Externalities
• JEL codes: C71, D62
• shapley value
• Externalities

Shapley (1953a) formulates his proposal of a value for cooperative games with transferable utility in characteristic function form, that is, for games where the re- sources every group of players has available to distribute among its members only depend on the members of the group. However, the worth of a coalition of agents often depends on the organization of the rest of the players. The existence of exter- nalities is one of the key ingredients in most interesting economic, social, or political environments. Thrall and Lucas (1963) provide the first formal description of set- tings with externalities by introducing the games in partition function form. In this chapter, we present the extensions of the Shapley value to this larger set of games. The different approaches that lead to the Shapley value in characteristic function form games (axiomatic, marginalistic, potential, dividends, non-cooperative) provide alternative routes for addressing the question of the most suitable extension of the Shapley value for the set of games in partition function form.