Cooperative Games with Transferable Utility

Abstract

The implicit assumption in a cooperative game is that players can form coalitions and make binding agreements on how to distribute the proceeds of these coalitions. A cooperative game is more abstract than a noncooperative game in the sense that strategies are not explicitly modelled: rather, the game describes what each possible coalition can earn by cooperation. In a cooperative game with transferable utility it is assumed that the earnings of a coalition can be expressed by one number. One may think of this number as an amount of money, which can be distributed among the players in any conceivable way—including negative payments—if the coalition is actually formed. More generally, it is an amount of utility and the implicit assumption is that it makes sense to transfer this utility among the players—for instance, due to the presence of a medium like money, assuming that individual utilities can be expressed in monetary terms.