Discussion Papers of Business and Economics
Department of Business and Economics, University of Southern Denmark
Jens Leth Hougaard
Cost Sharing in Chains and Other Fixed Trees
(), Mich Tvede
() and Lars Peter Østerdal
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; (follow links to similar papers)
JEL-Codes: C71; D63; (follow links to similar papers)
15 pages, September 5, 2013
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