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Commons with increasing marginal costs: random priority versus average cost

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  • HervÈ CrËs
  • HervÈ Moulin

Abstract

Indivisible units are produced with increasing marginal costs. Under "average cost", each user pays average cost. Under "random priority", users are randomly ordered (without bias) and successively offered to buy at the true marginal cost. Both average cost (AC) and random priority (RP) inefficiently overproduce. RP tends to overproduce less, but which game collects more surplus depends much on the demand configuration. We show that a key to compare the welfare properties of the two mechanisms is the "crowding factor", i.e., the number of potential users over the number of units of output users can afford: The more crowded the commons, the more RP outperforms AC. In the quadratic cost case, beyond the "threshold value" of 2.4 for the crowding factor, RP strongly outperforms AC; beneath it AC only mildly outperforms RP. Thus the RP mechanism manages crowded commons better than AC. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • HervÈ CrËs & HervÈ Moulin, 2003. "Commons with increasing marginal costs: random priority versus average cost," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1097-1115, August.
  • Handle: RePEc:ier:iecrev:v:44:y:2003:i:3:p:1097-1115
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    References listed on IDEAS

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    1. 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.
    2. Hervé Crès & Hervé Moulin, 2001. "Scheduling with Opting Out: Improving upon Random Priority," Operations Research, INFORMS, vol. 49(4), pages 565-577, August.
    3. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    4. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62, pages 124-124.
    5. Shapley, Lloyd S & Shubik, Martin, 1969. "Pure Competition, Coalitional Power, and Fair Division," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 337-362, October.
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    Cited by:

    1. Hervé Moulin, 2008. "The price of anarchy of serial, average and incremental cost sharing," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(3), pages 379-405, September.
    2. Moulin, Herve, 2001. "Three Solutions to a Simple Commons Problem," Working Papers 2001-05, Rice University, Department of Economics.
    3. repec:eee:matsoc:v:90:y:2017:i:c:p:73-79 is not listed on IDEAS
    4. Moulin, Hervé, 2010. "An efficient and almost budget balanced cost sharing method," Games and Economic Behavior, Elsevier, vol. 70(1), pages 107-131, September.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General

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