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Cooperative production under diminishing marginal returns: Interpreting fixed-path methods

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Fixed-path methods (FPMs) were introduced to manage situations where several individuals jointly operate a single technology (see [4]). In the production context, they consist in allocating marginal increments of output according to a proportions vector which changes along an arbitrary path. While very appealing from an incentives viewpoint under diminishing marginal returns, the asymmetry of these methods lacks solid economic interpretation. We provide such an interpretation by considering a situation where the technology to be shared results from the aggregation of private production processes. We propose a group-strategyproof mechanism under which no single agent wishes to secede from the partnership: the inverse marginal product proportions mechanism. It is the only FPM satisfying autarkic individual rationality; its path is uniquely determined by the technological contributions of the agents.

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Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 06-10.

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Length: 28 pages
Date of creation: Oct 2006
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Handle: RePEc:iea:carech:0610

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Keywords: Autarky; incentive compatibility; cooperative production; surplus sharing; serial rule; path methods.;

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  1. Weitzman, Martin L., 1974. "Free access vs private ownership as alternative systems for managing common property," Journal of Economic Theory, Elsevier, vol. 8(2), pages 225-234, June.
  2. Eric Friedman, 2004. "Strong monotonicity in surplus sharing," Economic Theory, Springer, vol. 23(3), pages 643-658, March.
  3. Saijo, Tatsuyoshi, 1991. "Incentive compatibility and individual rationality in public good economies," Journal of Economic Theory, Elsevier, vol. 55(1), pages 203-212, October.
  4. Friedman, Eric J., 2002. "Strategic properties of heterogeneous serial cost sharing," Mathematical Social Sciences, Elsevier, vol. 44(2), pages 145-154, November.
  5. Sprumont, Yves, 1998. "Ordinal Cost Sharing," Journal of Economic Theory, Elsevier, vol. 81(1), pages 126-162, July.
  6. Dasgupta, Partha S & Hammond, Peter J & Maskin, Eric S, 1979. "The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 185-216, April.
  7. Shin, Sungwhee & Suh, Sang-Chul, 1997. "Double Implementation by a Simple Game Form in the Commons Problem," Journal of Economic Theory, Elsevier, vol. 77(1), pages 205-213, November.
  8. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September.
  9. Leroux, Justin, 2004. "Strategy-proofness and efficiency are incompatible in production economies," Economics Letters, Elsevier, vol. 85(3), pages 335-340, December.
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Cited by:
  1. Trudeau, Christian, 2009. "Cost sharing with multiple technologies," Games and Economic Behavior, Elsevier, vol. 67(2), pages 695-707, November.
  2. Kumar, Rajnish, 2013. "Secure implementation in production economies," Mathematical Social Sciences, Elsevier, vol. 66(3), pages 372-378.
  3. Moulin, Hervé, 2010. "An efficient and almost budget balanced cost sharing method," Games and Economic Behavior, Elsevier, vol. 70(1), pages 107-131, September.
  4. Leroux, Justin, 2008. "Profit sharing in unique Nash equilibrium: Characterization in the two-agent case," Games and Economic Behavior, Elsevier, vol. 62(2), pages 558-572, March.

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