Commons with increasing marginal costs: random priority versus average cost

Hervé Crès and Herve Moulin

International Economic Review, 2003, vol. 44, issue 3, 1097-1115

Abstract: Indivisible units are produced with increasing marginal costs. Under "average cost", each user pays average cost. Under "random priority", users are randomly ordered (without bias) and successively offered to buy at the true marginal cost. Both average cost (AC) and random priority (RP) inefficiently overproduce. RP tends to overproduce less, but which game collects more surplus depends much on the demand configuration. We show that a key to compare the welfare properties of the two mechanisms is the "crowding factor", i.e., the number of potential users over the number of units of output users can afford: The more crowded the commons, the more RP outperforms AC. In the quadratic cost case, beyond the "threshold value" of 2.4 for the crowding factor, RP strongly outperforms AC; beneath it AC only mildly outperforms RP. Thus the RP mechanism manages crowded commons better than AC. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2003
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Working Paper: Commons with increasing marginal costs: random priority versus average cost (2003)
Working Paper: Commons with increasing marginal costs: random priority versus average cost (2003)
Working Paper: Commons with Increasing Marginal Costs: Random Priority versus Average Cost (2000)
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