Responsibility and Cross-Subsidization in Cost Sharing
Series/Report no.Cahier de recherche #2002-19
- [JEL:C71] Mathematical and Quantitative Methods - Game Theory and Bargaining Theory - Cooperative Games
- [JEL:D63] Microeconomics - Welfare Economics - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- [JEL:C71] Mathématiques et méthodes quantitatives - Théorie des jeux et négociation - Jeux coopératifs
- [JEL:D63] Microéconomie - Économie du bien-être - Egalité, justice, inégalité et autres critères normatifs et mesures
We propose two axiomatic theories of cost sharing with the common premise that agents demand comparable -though perhaps different- commodities and 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 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.
MOULIN, Hervé et SPRUMONT, Yves., «Responsibility and Cross-Subsidization in Cost Sharing», Cahier de recherche #2002-19, Département de sciences économiques, Université de Montréal, 2002, 40 pages.