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Decentralized Pricing in Minimum Cost Spanning Trees

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  • Jens Leth Hougaard

    (Department of Food and Resource Economics, University of Copenhagen)

  • Hervé Moulin

    (Department of Economics, Rice University)

  • Lars Peter Østerdal

    (Department of Economics, University of Copenhagen)

Abstract

In the minimum cost spanning tree model we consider decentralized pricing rules, i.e. rules that cover at least the efficient cost while the price charged to each user only depends upon his own connection costs. We define a canonical pricing rule and provide two axiomatic characterizations. First, the canonical pricing rule is the smallest among those that improve upon the Stand Alone bound, and are either superadditive or piece-wise linear in connection costs. Our second, direct characterization relies on two simple properties highlighting the special role of the source cost.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-24.

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Length: 13 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:kud:kuiedp:0824

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Keywords: pricing rules; minimum cost spanning trees; canonical pricing rule; stand-alone cost; decentralization;

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References

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  1. Bhaskar Dutta & Anirban Kar, 2002. "Cost monotonicity, consistency and minimum cost spanning tree games," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 02-04, Indian Statistical Institute, New Delhi, India.
  2. Norde, H.W. & Moretti, S. & Tijs, S.H., 2001. "Minimum Cost Spanning Tree Games and Population Monotonic Allocation Schemes," Discussion Paper 2001-18, Tilburg University, Center for Economic Research.
  3. Stefano Moretti & Rodica Branzei & Henk Norde & Stef Tijs, 2004. "The P-value for cost sharing in minimum," Theory and Decision, Springer, vol. 56(1), pages 47-61, 04.
  4. Moulin, Herve, 1992. "Welfare bounds in the cooperative production problem," Games and Economic Behavior, Elsevier, vol. 4(3), pages 373-401, July.
  5. Moulin, H., 1986. "Characterizations of the pivotal mechanism," Journal of Public Economics, Elsevier, vol. 31(1), pages 53-78, October.
  6. Moulin, Herve, 1990. "Uniform externalities : Two axioms for fair allocation," Journal of Public Economics, Elsevier, vol. 43(3), pages 305-326, December.
  7. Brânzei, R. & Moretti, S. & Norde, H.W. & Tijs, S.H., 2003. "The P-Value for Cost Sharing in Minimum Cost Spanning Tree Situations," Discussion Paper 2003-129, Tilburg University, Center for Economic Research.
  8. Demko, Stephen & Hill, Theodore P., 1988. "Equitable distribution of indivisible objects," Mathematical Social Sciences, Elsevier, vol. 16(2), pages 145-158, October.
  9. Brams,Steven J. & Taylor,Alan D., 1996. "Fair Division," Cambridge Books, Cambridge University Press, number 9780521556446, April.
  10. Gustavo Bergantiños & Juan Vidal-Puga, 2005. "A fair rule in minimum cost spanning tree problems," Game Theory and Information 0504001, EconWPA.
  11. Hervé Moulin & Scott Shenker, 2001. "Strategyproof sharing of submodular costs:budget balance versus efficiency," Economic Theory, Springer, vol. 18(3), pages 511-533.
  12. Bogomolnaia, Anna & Moulin, Herve, 2001. "A New Solution to the Random Assignment Problem," Journal of Economic Theory, Elsevier, vol. 100(2), pages 295-328, October.
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Cited by:
  1. Jens Leth Hougaard & Mich Tvede, 2010. "Strategyproof Nash Equilibria in Minimum Cost Spanning Tree Models," MSAP Working Paper Series 01_2010, University of Copenhagen, Department of Food and Resource Economics.
  2. Hougaard, Jens Leth & Tvede, Mich, 2012. "Truth-telling and Nash equilibria in minimum cost spanning tree models," European Journal of Operational Research, Elsevier, vol. 222(3), pages 566-570.

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