A PROBABILISTIC THEORY OF COALITION-FORMATION IN N-PERSON SIDE-PAYMENT GAMES

This paper describes the central-union theory, which offers a new appr oach to the formation of coalition structures in cooperative, sidepaym ent, superadditive n-person games. This theory treats formation of coa lition structures as a probabilistic, endogenous process. Fundamental to this process is the new concept of coalition structure candidate se t. For any given coalition structure, the predicted probability of for mation is a function of two variables: (1) whether the coalition struc ture is a member of the coalition structure candidate set (coalition s tructures not in the candidate set will not form) and (2) the extent t o which players accept that coalition structure. Players' acceptance, in turn, depends on differences among players in the level of satisfac tion regarding the allocation of payoffs within the coalition structur e.