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Stable cost sharing in production allocation games

Author

Listed:
  • Eric Bahel

    (Department of Economics, Virginia Polytechnic Institute and State University)

  • Christian Trudeau

    (Department of Economics, University of Windsor)

Abstract

Suppose that a group have demands for some good. Each one of them owns a technology to produce the good, with these technologies varying in their effectiveness. We consider technologies exhibiting either increasing return to scale (IRS) or decreasing returns to scale (DRS). In each case, we solve the issue of the efficient allocation of the production between the agents. In the case of IRS, we prove that it is always efficient to centralize the production of the good, whereas efficiency in the case of DRS typically requires to spread the production. We then show that there exist stable cost sharing mechanisms whether we have IRS or DRS. Finally, we characterize a family of stable mechanisms exhibiting no price discrimination (agents are charged the same price for each unit demanded). Under some specific circumstances, our method generates the full core of the problem.

Suggested Citation

  • Eric Bahel & Christian Trudeau, 2014. "Stable cost sharing in production allocation games," Working Papers 1402, University of Windsor, Department of Economics.
    • Handle: RePEc:wis:wpaper:1402
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    References listed on IDEAS

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    17. Eric Bahel & Christian Trudeau, 2013. "A discrete cost sharing model with technological cooperation," International Journal of Game Theory, Springer;Game Theory Society, vol. 42(2), pages 439-460, May.
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    Cited by:

    1. Eric Bahel & Christian Trudeau, 2018. "Consistency requirements and pattern methods in cost sharing problems with technological cooperation," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(3), pages 737-765, September.
    2. Jin Li & Sang-Chul Suh & Yuntong Wang, 2020. "Sharing pollution permits under welfare upper bounds," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 28(2), pages 489-505, July.
    3. Sang-Chul Suh & Yuntong Wang, 2016. "Pollution Permit Sharing Games," Working Papers 1604, University of Windsor, Department of Economics.
    4. R. Branzei & E. Gutiérrez & N. Llorca & J. Sánchez-Soriano, 2021. "Does it make sense to analyse a two-sided market as a multi-choice game?," Annals of Operations Research, Springer, vol. 301(1), pages 17-40, June.
    5. Bahel, Eric & Trudeau, Christian, 2019. "A cost sharing example in which subsidies are necessary for stability," Economics Letters, Elsevier, vol. 185(C).

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    More about this item

    Keywords

    cost sharing; efficiency; stability; production allocation; returns to scale;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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