Professor Frank Huettner of Sungkyunkwan University’s SKK GSB has published a paper in the prestigious journal Games and Economic Behavior on a method for plausibly distributing benefits, even when outsiders can exert externalities.

Professor Huettner, along with Professor André Casajus of HHL Leipzig Graduate School of Management and Professor Yukihiko Funaki of Waseda University, conducted research on the Shapley value and its extensions.

The Shapley value is a concept that provides a fair method for distributing the benefits gained by multiple participants working together. It calculates the contribution of each participant to the overall value of the project and proposes a fair distribution of rewards.

The traditional Shapley value is difficult to apply in situations where external factors can exert externalities. In this paper, Professor Huettner and his co-authors address how to plausibly distribute benefits even when external factors interfere.

To illustrate the impact of externalities, consider a scenario where LG and BMW are negotiating a deal to divide the benefits of 100 billion KRW from using LG's batteries in BMW vehicles. The traditional Shapley value might suggest dividing these benefits 50-50. However, the benefit might depend on whether LG's Swedish competitor Northvolt reaches an agreement with BMW's competitor Mercedes-Benz. If Northvolt and Mercedes-Benz collaborate, the estimated benefit between LG and BMW could drop to 80 billion KRW. In this case, Northvolt and Mercedes-Benz exert external effects on BMW and LG, making the traditional Shapley value inapplicable. The scenario might be even more complex, involving potential collaborations between BMW and Northvolt, Mercedes-Benz and LG, or even technological partnerships between Northvolt and LG, further complicating the value distribution problem.

The authors refine and extend a previous approach to better account for these complex scenarios, offering a more comprehensive and conclusive way to distribute value. Their generalization of the Shapley value can be employed in situations like the above example, providing a fair allocation method that takes into account the potential actions of external entities.

Original Journal: http://doi.org/10.1016/j.geb.2024.06.004