Sufficiently Specialized Economies have Nonempty Cores

An economy with a nonempty core may plausibly be regarded as socially stable since there exists allocations against which no group in the economy wishes to "contract out". Aside from classical economies, it is not generally known what are the primitives of an economy that give rise to a nonempty core. This paper finds a class of perturbations that operate directly on economic primitives to generate a nonempty core.These perturbations are characterized by two properties which have economic content. The first is a notion of specialization -- individuals hold goods and essential inputs to productive processes that are not readily available elsewhere in the economy. The second is a curvature condition. Each agent's preferences must display sufficient curvature so that another person's specialized holdings are valued by the agent. It is shown that for any economy of a general class that includes possibly local nonconvexities and a wide variety of property rights configurations, if the economy is sufficiently specialized and the curvature condition is satisfied, then the corresponding NTU game is balanced. Hence, the economy has a nonempty core.

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Paper Number
95-07
Year
1995
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