Decentralized Pricing in Minimum Cost Spanning Trees

Jens Leth Hougaard (), Herve Moulin () and Lars Peter Østerdal
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Lars Peter Østerdal: Department of Economics, University of Copenhagen

No 08-24, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: In the minimum cost spanning tree model we consider decentralized pricing rules, i.e. rules that cover at least the efficient cost while the price charged to each user only depends upon his own connection costs. We define a canonical pricing rule and provide two axiomatic characterizations. First, the canonical pricing rule is the smallest among those that improve upon the Stand Alone bound, and are either superadditive or piece-wise linear in connection costs. Our second, direct characterization relies on two simple properties highlighting the special role of the source cost.

Keywords: pricing rules; minimum cost spanning trees; canonical pricing rule; stand-alone cost; decentralization (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
Date: 2008-10
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