Economic Applications of the Shapley Value

Abstract

In the previous chapters, the concept of value was presented in a very abstract way. It has proved, however, to be a powerful tool in modelling some economic problems. In fact, since the Shapley value can be interpreted in terms of “marginal worth”, it is closely related to traditional economic ideas. To illustrate this, we first present the Value Equivalence Theorem — the analogue of the Core Equivalence Theorem. Though other important applications exist, we then focus on three applications of the value concept to economic models other than the general equilibrium model. Each of them describes a way of departing from the market model environment. The first two are economic-political models dealing with taxation. Taxation has (at least) two purposes: redistribution and the raising of funds to finance public goods. The classical literature assumes that a benevolent government takes decisions so as to maximize some social utility function. On the contrary, analysing the government as subject to the influence of those who elected it brings new light on both aspects. Value appears to be a natural tool to deal with the voting games that are part of the two corresponding models. In the last section, we deal with economies with fixed prices.

The author is very grateful to J.F. Mertens, who prepared this chapter on the basis of the author’s presentation.