Scandinavian Working Papers in Economics
Working Papers,
Copenhagen Business School, Department of Economics
No 17-2024: Rationalizing Sharing Rules
Karol Flores-Szwagrzak () and Lars Peter Østerdal ()
Additional contact information
Karol Flores-Szwagrzak: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Lars Peter Østerdal: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Abstract: A partnership can yield a return—a loss or a profit relative to the partners’ investments. How should the partners share the return? We identify the shar-ing rules satisfying classical properties (symmetry, consistency, and continuity) and avoiding arbitrary bounds on a partner’s share. We show that any such rule can be rationalized in the sense that its recommendations are aligned with those maximizing a separable welfare function. Among these rules, we charac-terize those formalizing different notions of proportionality and, in particular, a convenient subclass specified by a single inequality aversion parameter. We also explore when a rule can be rationalized by a more general welfare function. Our central results extend to a wider class of resource allocation problems.
Keywords: Sharing; Consistency; Axioms; Welfare maximization
Language: English
36 pages, November 11, 2024
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