Allocating environmental costs among heterogeneous sources: The linear damage equivalent mechanism.

A group of firms has to divide the costs associated with environmental damages jointly generated as a by-product of their heterogeneous production activities. We propose a specific procedure to assign costs, the Linear Damage Equivalent Mechanism (LDE), which satisfies several appealing strategic and axiomatic properties. The LDE induces a strategic game that has an unambiguous noncooperative prediction, a unique Nash equilibrium which is also robust to coalitional deviations; moreover, the equilibrium is efficient. Among its other properties, we find that the LDE is immune to arbitrary changes in the units of account of the outputs.Environmental damages; Cost-sharing; Heterogeneous sources;

- A PROCEDURE FOR SHARING RECYCLING COSTS

This paper examines a situation in which the production activities of different agents, in a common geographical location, create waste products that are either of a similar biological or chemical composition or offer commercially compatible combinations. What we propose here, therefore, is a cost-sharing model for the of recycling of their waste products. We concentrate, however, on the specific case in which the agents' activities are heterogeneous. We first examine, from a normative point of view, the cost-sharing rule, which we shall call the multi-commodity serial (MCS) rule. We introduce a property, that we call Cost-Based Equal Treatment, and we demonstrate that the unique rule verifying the Serial Principle and this property is the MCS rule. We then deal with the analysis of the agents' strategic behavior when they are allowed to select their own production levels, in which case the total cost is then split, in accordance with the MCS rule. We show that there is only one Nash equilibrium, which is obtained from an interactive elimination of dominated strategies.Cost Sharing Rules, Serial Cost Sharing, Dominance Solvability.

Cost Sharing, Differential Games, and the Moulin-Shenker Rule

The Moulin-Shenker rule (Sprumont (1998)) is a nonlinear solution concept for solving heterogeneous cost sharing problems. The first part of the paper shows an axiomatic characterization of this solution using bounds on cost shares and consistency. The second part is devoted to differential games for heterogeneous production problems. It is shown for 2-player games that by an appropriate choice of the game dynamics there is essentially a unique Markov perfect Nash equilibrium. An axiomatic analysis follows for the appropriate game dynamics, which leads in turn to a strategic characterization of the Moulin-Shenker rule.

Equity and economic theory: reflections on methodology and scope

This paper provides an introduction to the recent literature on ordinal distributive justice. Its objetive is to explain the process of the mathematical analysis of fairness and to consider its potential for solving real allocative problems by means of several illustrative examples

Equity and economic theory: reflections on methodology and scope.

This paper provides an introduction to the recent literature on ordinal distributive justice. Its objetive is to explain the process of the mathematical analysis of fairness and to consider its potential for solving real allocative problems by means of several illustrative examples.Fairness; Equity; Distributive justice;

Allocating environmental costs among heterogeneous sources: The linear damage equivalent mechanism

A group of firms has to divide the costs associated with environmental damages jointly generated as a by-product of their heterogeneous production activities. We propose a specific procedure to assign costs, the Linear Damage Equivalent Mechanism (LDE), which satisfies several appealing strategic and axiomatic properties. The LDE induces a strategic game that has an unambiguous noncooperative prediction, a unique Nash equilibrium which is also robust to coalitional deviations; moreover, the equilibrium is efficient. Among its other properties, we find that the LDE is immune to arbitrary changes in the units of account of the outputs

Strategyproof Profit Sharing: A Two-Agent Characterization

Two agents jointly operate a decreasing marginal returns technology to produce a private good. We characterize the class of output-sharing rules for which the labor-supply game has a unique Nash equilibrium. It consists of two families: rules of the serial type which protect a small user from the negative externality imposed by a large user, and rules of the reverse serial type, where one agent effectively employs the other agent's labor. Exactly two rules satisfy symmetry; a result in sharp contrast with Moulin and Shenker's (Econometrica, 1992) characterization of their serial mechanism as the unique cost -sharing rule satisfying the same incentives property. We also show that the familiar stand alone test characterizes the class of fixed-path methods (Friedman, Economic Theory, 2002) under our incentives criterion.

Profit sharing in unique Nash equilibrium: Characterization in the two-agent case

Two agents jointly operate a decreasing marginal returns technology to produce a private good. We characterize the class of output-sharing rules for which the labor-supply game has a unique Nash equilibrium. It consists of two families: rules of the serial type which protect a small user from the negative externality imposed by a large user, and rules of the reverse serial type, where one agent effectively employs the other agent’s labor. Exactly two rules satisfy symmetry; a result in sharp contrast with Moulin and Shenker’s (Econometrica, 1992) characterization of their serial mechanism as the unique cost-sharing rule satisfying the same incentives property. We also show that the familiar stand alone test characterizes the class of fixed-path methods (Friedman, Economic Theory, 2002) under our incentives criterion.Joint production, serial rule, decreasing serial rule, strategyproofness.

Pooling Private Technologies: Improving upon Autarky

When n agents decide to pool their private, decreasing returns technologies, single-path methods are a natural way to share joint output because of their strong incentives properties (Friedman, 2002). They are a non-anonymous generalization of the serial rule (Moulin and Shenker, 1992) sharing a production function along a prespecified path. We show that only one of these methods satisfies voluntary participation; its generating path is entirely determined by the n production functions. This yields a bijection between single-path methods and distributions of property rights on a single technology. Also, we show that these methods are characterized by their incentives properties in the 2-agent case, but not for n >= 3.

Strategyproof Profit Sharing in Partnerships: Improving upon Autarky

Several producers decide to form a partnership, to which they contribute both capital and labor. We propose a group-strategyproof mechanism under which no single agent is tempted to secede from the partnership: the inverse marginal product proportions (or IMPP) mechanism. The IMPP mechanism combines aspects of common ownership with the requirement that private property rights be respected: when an agent decides to stop exploiting her own capital, the latter is shared between the remaining agents in proportion to the productivity of their own capital. The IMPP is in fact the only fixed-path method (as introduced in Friedman, 2002) to satisfy autarkic individual rationality; its path is uniquely determined by the capital contributions of the agents. Thus, our results provide one of the first economic motivation for the asymmetry of fixed-path methods.