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Responsibility and Cross-Subsidization in Cost Sharing

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  • MOULIN, Hervé
  • SPRUMONT, Yves.

Abstract

We propose two axiomatic theories of cost sharing with the common premise that agents demand comparable -though perhaps different- commodities and are responsible for their own demand. Under partial responsibility the agents are not responsible for the asymmetries of the cost function: two agents consuming the same amount of output always pay the same price; this holds true under full responsibility only if the cost function is symmetric in all individual demands. If the cost function is additively separable, each agent pays her stand alone cost under full responsibility; this holds true under partial responsibility only if, in addition, the cost function is symmetric. By generalizing Moulin and Shenker’s (1999) Distributivity axiom to cost-sharing methods for heterogeneous goods, we identify in each of our two theories a different serial method. The subsidy-free serial method (Moulin, 1995) is essentially the only distributive method meeting Ranking and Dummy. The cross-subsidizing serial method (Sprumont, 1998) is the only distributive method satisfying Separability and Strong Ranking. Finally, we propose an alternative characterization of the latter method based on a strengthening of Distributivity.

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Bibliographic Info

Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2002-19.

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Length: 40 ges pages
Date of creation: 2002
Date of revision:
Handle: RePEc:mtl:montde:2002-19

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  1. Sharkey,William W., 1983. "The Theory of Natural Monopoly," Cambridge Books, Cambridge University Press, number 9780521271943.
  2. Wang, YunTong, 1999. "The additivity and dummy axioms in the discrete cost sharing model," Economics Letters, Elsevier, vol. 64(2), pages 187-192, August.
  3. Young, H Peyton, 1985. "Producer Incentives in Cost Allocation," Econometrica, Econometric Society, vol. 53(4), pages 757-65, July.
  4. Sprumont, Y., 1996. "Ordinal Cost Sharing," Cahiers de recherche 9624, Universite de Montreal, Departement de sciences economiques.
  5. Roemer,John E., 1994. "Egalitarian Perspectives," Cambridge Books, Cambridge University Press, number 9780521450669.
  6. Moulin, HervÈ & Shenker, Scott, 1997. "Distributive and Additive Costsharing of an Homogeneous Good," Working Papers 97-21, Duke University, Department of Economics.
  7. Sprumont, Yves, 1997. "Balanced egalitarian redistribution of income," Mathematical Social Sciences, Elsevier, vol. 33(3), pages 185-201, June.
  8. Thom Bezembinder & Hans Maassen, 2002. "Generating random weak orders and the probability of a Condorcet winner," Social Choice and Welfare, Springer, vol. 19(3), pages 517-532.
  9. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
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  11. Dov Samet & Yair Tauman, 1981. "The Determination of Marginal-Cost Prices Under a Set of Axioms," Discussion Papers 476, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September.
  13. Nouweland, C.G.A.M.. van den & Potters, J. & Tijs, S.H. & Zarzuelo, J., 1991. "Cores and related solution concepts for multi-choice games," Research Memorandum 478, Tilburg University, Faculty of Economics and Business Administration.
  14. Bertil Tungodden, 2005. "Responsibility and redistribution: The case of first best taxation," Social Choice and Welfare, Springer, vol. 24(1), pages 33-44, 06.
  15. Moulin Herve & Shenker Scott, 1994. "Average Cost Pricing versus Serial Cost Sharing: An Axiomatic Comparison," Journal of Economic Theory, Elsevier, vol. 64(1), pages 178-201, October.
  16. Marc Fleurbaey & Walter Bossert, 1996. "Redistribution and compensation (*)," Social Choice and Welfare, Springer, vol. 13(3), pages 343-355.
  17. Koster, M.A.L. & Tijs, S.H. & Borm, P.E.M., 1998. "Serial cost sharing methods for multi-commodity situations," Open Access publications from Tilburg University urn:nbn:nl:ui:12-78039, Tilburg University.
  18. Moulin, Herve, 2001. "Axiomatic Cost and Surplis-Sharing," Working Papers 2001-06, Rice University, Department of Economics.
  19. 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.
  20. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
  21. Hervé Moulin, 1995. "On Additive Methods To Share Joint Costs," The Japanese Economic Review, Japanese Economic Association, vol. 46(4), pages 303-332, December.
  22. SPRUMONT, Yves, 1999. "Coherent Cost-Sharing Rules," Cahiers de recherche 9902, Universite de Montreal, Departement de sciences economiques.
  23. Ori Haimanko, 2000. "Value theory without symmetry," International Journal of Game Theory, Springer, vol. 29(3), pages 451-468.
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Citations

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Cited by:
  1. SPRUMONT, Yves, 2004. "Nearly Serial Sharing Methods," Cahiers de recherche 2004-14, Universite de Montreal, Departement de sciences economiques.
  2. Moulin, Herve & Sprumont, Yves, 2004. "On Demand Responsiveness in Additive Cost Sharing," Working Papers 2004-03, Rice University, Department of Economics.
  3. Yves Sprumont, 2010. "An Axiomatization of the Serial Cost-Sharing Method," Econometrica, Econometric Society, vol. 78(5), pages 1711-1748, 09.
  4. Eric Bahel & Christian Trudeau, 2013. "A discrete cost sharing model with technological cooperation," International Journal of Game Theory, Springer, vol. 42(2), pages 439-460, May.
  5. Hervé Moulin & Yves Sprumont, 2007. "Fair allocation of production externalities : recent results," Revue d'économie politique, Dalloz, vol. 0(1), pages 7-36.
  6. Edward Pearsall, 2009. "The complete incremental cost test for cross-subsidies with a sub-modular cost function," Journal of Regulatory Economics, Springer, vol. 36(3), pages 274-285, December.
  7. Christian Trudeau, 2013. "Minimum cost spanning tree problems with indifferent agents," Working Papers 1306, University of Windsor, Department of Economics.
  8. Trudeau, Christian, 2009. "Cost sharing with multiple technologies," Games and Economic Behavior, Elsevier, vol. 67(2), pages 695-707, November.
  9. Moulin, Herve & Vohra, Rakesh, 2003. "Characterization of additive cost sharing methods," Economics Letters, Elsevier, vol. 80(3), pages 399-407, September.

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