Cost Sharing in Chains and Other Fixed Trees

Jens Hougaard (), Mich Tvede and Lars Peter Østerdal

No 12/2013, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: We consider a cost sharing problem among agents on a line. The problem is closely related to the classic airport game, but in our model agents are characterized by their location, rather than their needed runway length. We characterize a family of cost allocation rules in which agents pay a share of the incremental costs as well as any debt from upstream agents, with the Bird rule (where agents pay their full incremental cost) and the ‘free rider’ rule (where the terminal agent pays everything) as the two extreme cases. We also extend the analysis to cost sharing among agents located on a fixed tree structure.

Keywords: Airport game; cost allocation; axiomatic characterization; Bird Rule; Incremental cost sharing (search for similar items in EconPapers)
JEL-codes: C71 D63 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2013-09-05
New Economics Papers: this item is included in nep-gth and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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