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Three Methods to Share Joint Costs or Surplus

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  • Friedman, Eric
  • Moulin, Herve

Abstract

We study cost sharing methods with variable demands of heterogeneous goods, additive in the cost function and meeting the Dummy axiom. We consider four axioms: Scale Invariance (SI); Demand Monotonicity (DM); Upper Bound for Homogeneous Goods (UBH) placing a natural cap on cost shares when goods are homogeneous; Average Cost Pricing for Homogeneous Goods (ACPH). The random order values based on Stand Alone costs are characterized by SI and DM. Serial costsharing, by DM and UB; the Aumann-Shapley pricing method, by SI and ACPH. No other combination of the four axioms is compatible with Additivity and Dummy.
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  • Friedman, Eric & Moulin, Herve, 1999. "Three Methods to Share Joint Costs or Surplus," Journal of Economic Theory, Elsevier, vol. 87(2), pages 275-312, August.
    • Handle: RePEc:eee:jetheo:v:87:y:1999:i:2:p:275-312
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    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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