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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. Sprumont, Y., 1995. "Balanced Egalitarian Redistribution of Income," Cahiers de recherche 9521, Universite de Montreal, Departement de sciences economiques.
  2. Bossert W., 1996. "Redistribution mechanisms based on individual characteristics," Mathematical Social Sciences, Elsevier, vol. 31(1), pages 51-51, February.
  3. Moulin, Herve, 2001. "Axiomatic Cost and Surplis-Sharing," Working Papers 2001-06, Rice University, Department of Economics.
  4. 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.
  5. Sprumont, Y., 1996. "Ordinal Cost Sharing," Cahiers de recherche 9624, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Young, H Peyton, 1985. "Producer Incentives in Cost Allocation," Econometrica, Econometric Society, vol. 53(4), pages 757-65, July.
  7. Bertil Tungodden, 2005. "Responsibility and redistribution: The case of first best taxation," Social Choice and Welfare, Springer, vol. 24(1), pages 33-44, 06.
  8. 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.
  9. 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.
  10. 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.
  11. Hervé Moulin, 1995. "On Additive Methods To Share Joint Costs," The Japanese Economic Review, Japanese Economic Association, vol. 46(4), pages 303-332, December.
  12. Moulin, HervÈ & Shenker, Scott, 1997. "Distributive and Additive Costsharing of an Homogeneous Good," Working Papers 97-21, Duke University, Department of Economics.
  13. 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.
  14. Marc Fleurbaey & Walter Bossert, 1996. "Redistribution and compensation (*)," Social Choice and Welfare, Springer, vol. 13(3), pages 343-355.
  15. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
  16. 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.
  17. Ori Haimanko, 2000. "Value theory without symmetry," International Journal of Game Theory, Springer, vol. 29(3), pages 451-468.
  18. Wang, YunTong, 1999. "The additivity and dummy axioms in the discrete cost sharing model," Economics Letters, Elsevier, vol. 64(2), pages 187-192, August.
  19. SPRUMONT, Yves, 1999. "Coherent Cost-Sharing Rules," Cahiers de recherche 9902, Universite de Montreal, Departement de sciences economiques.
  20. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September.
  21. Roemer,John E., 1997. "Egalitarian Perspectives," Cambridge Books, Cambridge University Press, number 9780521574457, April.
  22. Martin Shubik, 1961. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Cowles Foundation Discussion Papers 112, Cowles Foundation for Research in Economics, Yale University.
  23. Sharkey,William W., 1983. "The Theory of Natural Monopoly," Cambridge Books, Cambridge University Press, number 9780521271943, April.
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Citations

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Cited by:
  1. Yves Sprumont, 2010. "An Axiomatization of the Serial Cost-Sharing Method," Econometrica, Econometric Society, vol. 78(5), pages 1711-1748, 09.
  2. SPRUMONT, Yves, 2004. "Nearly Serial Sharing Methods," Cahiers de recherche 17-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  3. MOULIN, Hervé & SPRUMONT, Yves, 2005. "Fair Allocation of Production Externalities: Recent Results," Cahiers de recherche 28-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  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. Moulin, Herve & Sprumont, Yves, 2003. "On Demand Responsiveness in Additive Cost Sharing," Working Papers 2003-10, Rice University, Department of Economics.
  6. Trudeau, Christian, 2014. "Minimum cost spanning tree problems with indifferent agents," Games and Economic Behavior, Elsevier, vol. 84(C), pages 137-151.
  7. Moulin, Herve & Vohra, Rakesh, 2003. "Characterization of additive cost sharing methods," Economics Letters, Elsevier, vol. 80(3), pages 399-407, September.
  8. 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.
  9. Trudeau, Christian, 2009. "Cost sharing with multiple technologies," Games and Economic Behavior, Elsevier, vol. 67(2), pages 695-707, November.

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