Cost Sharing under Increasing Returns: A Comparison of Simple Mechanisms

Author: Moulin H.

Source: Games and Economic Behavior, Volume 13, Number 1, April 1996 , pp. 225-251(27)

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Abstract:

A technology with decreasing marginal costs is used by agents with equal rights. Each agent demands a quantity of output and costs are divided by means of a fixed formula. Several such mechanisms are compared for the existence of Nash equilibrium demand profiles and for the equity properties of these equilibria. Among three mechanisms, average cost pricing, the Shapley-Shubik cost sharing, and serial cost-sharing, only the latter two possess at least one Nash equilibrium on a reasonable domain of individual preferences. Only the serial cost sharing equilibria pass the equity tests of No Envy and Stand Alone cost. Journal of Economic Literature Classification Numbers: C72, D63.

Language: English

Document Type: Research article

Affiliations: Department of Economics, Duke University, Durham, North Carolina, 27708-0097

Publication date: 1996-04-01