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Responsibility and Cross-Subsidization in Cost Sharing

  • Moulin, Herve

    (Rice U)

  • Sprumont, Yves

    (Universite de Montreal)

We propose two axiomatic theories of cost sharing with the common premise that individual demands are comparable, though perhaps different, commodities, and that agents 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 his/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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Paper provided by Rice University, Department of Economics in its series Working Papers with number 2002-05.

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Date of creation: Dec 2002
Date of revision:
Handle: RePEc:ecl:riceco:2002-05
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  1. Tungodden, B., 2000. "Responsibility and Redistribution: the Case of First Best Taxation," Papers 14/00, Norwegian School of Economics and Business Administration-.
  2. Eric Friedman & Moulin, Herve, 1995. "Three Methods to Share Joint Costs or Surplus," Working Papers 95-38, Duke University, Department of Economics.
  3. 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.
  4. SPRUMONT, Yves, 1999. "Coherent Cost-Sharing Rules," Cahiers de recherche 9902, Universite de Montreal, Departement de sciences economiques.
  5. Samet, Dov & Tauman, Yair, 1982. "The Determination of Marginal Cost Prices under a Set of Axioms," Econometrica, Econometric Society, vol. 50(4), pages 895-909, July.
  6. Moulin, Herve, 1995. "On Additive Methods to Share Joint Costs," Mathematical Social Sciences, Elsevier, vol. 30(1), pages 98-99, August.
  7. Bossert, Walter, 1995. "Redistribution mechanisms based on individual characteristics," Mathematical Social Sciences, Elsevier, vol. 29(1), pages 1-17, February.
  8. Moulin, HervÈ & Shenker, Scott, 1997. "Distributive and Additive Costsharing of an Homogeneous Good," Working Papers 97-21, Duke University, Department of Economics.
  9. Sprumont, Y., 1996. "Ordinal Cost Sharing," Cahiers de recherche 9624, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  10. Fleurbaey Marc, 1995. "Three Solutions for the Compensation Problem," Journal of Economic Theory, Elsevier, vol. 65(2), pages 505-521, April.
  11. Roemer,John E., 1997. "Egalitarian Perspectives," Cambridge Books, Cambridge University Press, number 9780521574457, October.
  12. Sprumont, Y., 1995. "Balanced Egalitarian Redistribution of Income," Cahiers de recherche 9521, Universite de Montreal, Departement de sciences economiques.
  13. Moulin, Herve, 2001. "Axiomatic Cost and Surplis-Sharing," Working Papers 2001-06, Rice University, Department of Economics.
  14. Moulin, Herve & Shenker, Scott, 1992. "Serial Cost Sharing," Econometrica, Econometric Society, vol. 60(5), pages 1009-37, September.
  15. Ori Haimanko, 2000. "Value theory without symmetry," International Journal of Game Theory, Springer, vol. 29(3), pages 451-468.
  16. Martin Shubik, 1962. "Incentives, Decentralized Control, the Assignment of Joint Costs and Internal Pricing," Management Science, INFORMS, vol. 8(3), pages 325-343, April.
  17. Koster, Maurice & Tijs, Stef & Borm, Peter, 1998. "Serial cost sharing methods for multi-commodity situations," Mathematical Social Sciences, Elsevier, vol. 36(3), pages 229-242, December.
  18. Marc Fleurbaey & Walter Bossert, 1996. "Redistribution and compensation (*)," Social Choice and Welfare, Springer, vol. 13(3), pages 343-355.
  19. Wang, YunTong, 1999. "The additivity and dummy axioms in the discrete cost sharing model," Economics Letters, Elsevier, vol. 64(2), pages 187-192, August.
  20. Young, H Peyton, 1985. "Producer Incentives in Cost Allocation," Econometrica, Econometric Society, vol. 53(4), pages 757-65, July.
  21. 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.
  22. Koster, M.A.L. & Tijs, S.H. & Borm, P.E.M., 1998. "Serial cost sharing methods for multi-commodity situations," Other publications TiSEM 6633be50-672a-42f3-a966-8, Tilburg University, School of Economics and Management.
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