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Strategyproof sharing of submodular costs:budget balance versus efficiency

Author

Listed:
  • Hervé Moulin

    () (Department of Economics, MS 22, Rice University, 6100 Main Street, Houston, TX 77005, USA)

  • Scott Shenker

    () (International Computer Science Institute, Suite 600, 1947 Center Street, Berkeley, CA 94704, USA)

Abstract

A service is produced for a set of agents. The service is binary, each agent either receives service or not, and the total cost of service is a submodular function of the set receiving service. We investigate strategyproof mechanisms that elicit individual willingness to pay, decide who is served, and then share the cost among them. If such a mechanism is budget balanced (covers cost exactly), it cannot be efficient (serve the surplus maximizing set of users) and vice-versa. We characterize the rich family of budget balanced and group strategyproof mechanisms and find that the mechanism associated with the Shapley value cost sharing formula is characterized by the property that its worst welfare loss is minimal. When we require efficiency rather than budget balance - the more common route in the literature - we find that there is a single Clarke-Groves mechanism that satisfies certain reasonable conditions: we call this the marginal cost pricing mechanism. We compare the size of the marginal cost pricing mechanism's worst budget surplus with the worst welfare loss of the Shapley value mechanism.

Suggested Citation

  • Hervé Moulin & Scott Shenker, 2001. "Strategyproof sharing of submodular costs:budget balance versus efficiency," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 18(3), pages 511-533.
  • Handle: RePEc:spr:joecth:v:18:y:2001:i:3:p:511-533
    Note: Received: October 26, 1998; revised version: December 3, 1999
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    Keywords

    Cost-sharing; Strategyproofness; Shapley value; Marginal cost pricing.;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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