Cost sharing: efficiency and implementation |
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Authors: | Todd R Kaplan David Wettstein |
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Institution: | Department of Economics, Ben-Gurion University of the Negev, P.O.B. 653, Beer-Sheva 84105, Israel |
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Abstract: | We study environments where a production process is jointly shared by a finite group of agents. The social decision involves the determination of input contribution and output distribution. We define a competitive solution when there is decreasing-returns-to-scale which leads to a Pareto optimal outcome. Since there is a finite number of agents, the competitive solution is prone to manipulation. We construct a mechanism for which the set of Nash equilibria coincides with the set of competitive solution outcomes. We define a marginal-cost-pricing equilibrium (MCPE) solution for environments with increasing returns to scale. These solutions are Pareto optimal under certain conditions. We construct another mechanism that realizes the MCPE. |
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Keywords: | Cost sharing Marginal-cost-pricing equilibrium Increasing returns to scale |
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