DP14993 A Game-Theoretical Model of the Landscape Theory

Author(s):	Michel Le Breton, Alexander Shapoval, Shlomo Weber
Publication Date:	July 2020
Keyword(s):	blocs, gradual deviation, hedonic games, landscape equilibrium, Landscape theory, potential functions
JEL(s):	C72, D74
Programme Areas:	Public Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14993

In this paper we examine a game-theoretical generalization of the landscape theory introduced by Axelrod and Bennett (1993). In their two-bloc setting each player ranks the blocs on the basis of the sum of her individual evaluations of members of the group. We extend the Axelrod-Bennett setting by allowing an arbitrary number of blocs and expanding the set of possible deviations to include multi-country gradual deviations. We show that a Pareto optimal landscape equilibrium which is immune to profitable gradual deviations always exists. We also indicate that while a landscape equilibrium is a stronger concept than Nash equilibrium in pure strategies, it is weaker than strong Nash equilibrium.