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Cost Sharing in Chains and Other Fixed Trees

Author

Listed:
  • Hougaard, Jens Leth

    (Department of Food and Resource Economics)

  • Tvede, Mich

    (Newcastle University)

  • Østerdal, Lars Peter

    (Department of Business and Economics)

Abstract

We consider a cost sharing problem among agents on a line. The problem is closely related to the classic airport game, but in our model agents are characterized by their location, rather than their needed runway length. We characterize a family of cost allocation rules in which agents pay a share of the incremental costs as well as any debt from upstream agents, with the Bird rule (where agents pay their full incremental cost) and the ‘free rider’ rule (where the terminal agent pays everything) as the two extreme cases. We also extend the analysis to cost sharing among agents located on a fixed tree structure.

Suggested Citation

  • Hougaard, Jens Leth & Tvede, Mich & Østerdal, Lars Peter, 2013. "Cost Sharing in Chains and Other Fixed Trees," Discussion Papers on Economics 12/2013, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2013_012
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    File URL: https://www.sdu.dk/-/media/files/om_sdu/institutter/ivoe/disc_papers/disc_2013/dpbe12_2013.pdf
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    References listed on IDEAS

    as
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    7. Granot, D & Maschler, M & Owen, G & Zhu, W.R., 1996. "The Kernel/Nucleolus of a Standard Tree Game," International Journal of Game Theory, Springer;Game Theory Society, vol. 25(2), pages 219-244.
    8. William Thomson, 2007. "Cost allocation and airport problems," RCER Working Papers 537, University of Rochester - Center for Economic Research (RCER).
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    Cited by:

    1. Han, Lining & Juarez, Ruben, 2018. "Free intermediation in resource transmission," Games and Economic Behavior, Elsevier, vol. 111(C), pages 75-84.

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    More about this item

    Keywords

    Airport game; cost allocation; axiomatic characterization; Bird Rule; Incremental cost sharing;
    All these keywords.

    JEL classification:

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

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