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Decentralized Pricing in Minimum Cost Spanning Trees

  • Jens Leth Hougaard

    (Department of Food and Resource Economics, University of Copenhagen)

  • Hervé Moulin

    (Department of Economics, Rice University)

  • Lars Peter Østerdal

    (Department of Economics, University of Copenhagen)

In the minimum cost spanning tree model we consider decentralized pricing rules, i.e. rules that cover at least the efficient cost while the price charged to each user only depends upon his own connection costs. We define a canonical pricing rule and provide two axiomatic characterizations. First, the canonical pricing rule is the smallest among those that improve upon the Stand Alone bound, and are either superadditive or piece-wise linear in connection costs. Our second, direct characterization relies on two simple properties highlighting the special role of the source cost.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 08-24.

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Length: 13 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:kud:kuiedp:0824
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  1. Stefano Moretti & Rodica Branzei & Henk Norde & Stef Tijs, 2004. "The P-value for cost sharing in minimum," Theory and Decision, Springer, vol. 56(2_2), pages 47-61, 02.
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  11. Feltkamp, V. & Tijs, S.H. & Muto, S., 1994. "On the irreducible core and the equal remaining obligations rule of minimum cost spanning extension problems," Discussion Paper 1994-106, Tilburg University, Center for Economic Research.
  12. Moulin, Herve, 1992. "Welfare bounds in the cooperative production problem," Games and Economic Behavior, Elsevier, vol. 4(3), pages 373-401, July.
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