New Coordination Mechanisms

Apart from the identification of improved solutions within an acceptable number of iterations, a further requirement for practicable coordination schemes is their applicability by rational, self-interested parties, which implies that the schemes can be embedded into suitable coordination mechanisms. In the following sections, we outline three contractual frameworks that form building blocks for the resulting mechanisms in combination with the schemes proposed in Chap. 4. All frameworks rely on compensation payments among parties as incentives for the implementation of coordinated solutions. First, these payments are necessary for ensuring individual rationality in the mechanisms. Often, the implementation of coordinated solutions involves cost increases for at least one party. Such increases necessarily occur if a party acts as the leader and unilaterally determines the allocation of the central resources in the default solution.1 Unless several optimal solutions exist for the leader’s problem, the implementation of a coordinated proposal will force the leader to deviate from his individually optimal solution, and, hence, to implement a solution with increased costs. Second, such payments are a straightforward way to align parties’ incentives with the actions required by the schemes.2