A cost sharing example in which subsidies are necessary for stability

Eric Bahel () and Christian Trudeau

Economics Letters, 2019, vol. 185, issue C

Abstract: Suppose that agents, who have demands for some goods, cooperate to produce their joint demands. If the technology for the production of these goods improves as the set of cooperating agents grows, we have a justification for subsidies when an agent has such an efficient technology that he is able to generate savings for the group. While it was known that there may exist some stable allocations with subsidies (i.e, negatives cost shares), our contribution is to show that subsidies could in some cases be indispensable for stability. The key for this result to hold is the presence of decreasing returns to scale, which can put many agents in competition for an efficient technology.

Keywords: Cost sharing; Subsidy; Stability; Returns to scale (search for similar items in EconPapers)
JEL-codes: C71 D63 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:185:y:2019:i:c:s0165176519303490

DOI: 10.1016/j.econlet.2019.108701

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