Signaling, Screening, and Core Stability

This paper provides a noncooperative approach to core stability in an economy with incomplete information. The analysis covers general exchange economies, although our tightest results hold when effective coalitions consist of at most two players, as in matching. We study the perfect Bayesian equilibria of an extensive form mechanism that extends the one used by Serrano and Vohra (1997) to implement the core of a complete information economy. This leads to a version of the core that we refer to as the sequential core, which allows for information to be transmitted among the agents during the process of coalition formation. Such information flows include proposals that can be viewed as signaling devices and/or screening contracts. The same result is obtained in a model of in nite-horizon coalitional bargaining for stationary PBE. Equilibrium refinements are then used to provide justifications for the coarse core and the fine core