Analysis of the core under inequality-averse utility functions

Abstract

We reexamine core-stability, incorporating inequality-averse preferences and challenging the conventional core’s stability under such preferences. We integrate existing social preferences tied to inequality aversion into a cooperative game model with transferable utility (TU games), introducing a novel core. We characterize the new core through inequalities akin to the “coalitional rationality” in TU games and conduct a comparative statics analysis on two parameters–envy and sympathy–representing inequality aversion. Our findings reveal that an increase in the envy parameter reduces elements in the new core, while heightened sympathy does not consistently decrease core elements.