Cases in Cooperation and Cutting the Cake

Cooperative game;sharing problem

Fairness, efficiency and the simultaneity of pricing and infrastructure capacity choice

The primary objective of infrastructure pricing in normative economics and policy discussions is economic efficiency This focus has led to the proposal that charges for infrastructure use should be based on all internal and external marginal costs associated with the use of infrastructure services. Distributional considerations, of the “fairness” of infrastructure pricing often played a supplementary role to help the acceptance of infrastructure charging. This paper sets out a simple framework for a quasi-market for infrastructure services with the perspective of simultaneously determining efficient prices and levels of infrastructure investment. It is shown that, depending on the intensity of infrastructure use, revenues generated by efficient prices do not in all cases cover the full costs of the services. Efficient cost recovery requires an additional fixed charge. Such a combination of a fixed charge and an efficient price per unit of service implies a distributional conflict if users differ substantially in their demand for infrastructure services. It is shown that methods to allocate fixed costs resolve this conflict applying standard norms of distributional justice and being compatible with a bargaining equilibrium among heterogeneous infrastructure users

Financing a National Transmission Grid: What Are the Issues?

The United States requires a substantial investment in transmission capacity over the next several decades. This investment is needed to ensure system reliability, to accommodate growth in demand for electricity, and to allow the integration of significant amounts of renewable generating capacity. In this paper I survey the need for new transmission capacity and consider the financial and regulatory obstacles that stand in the way of this new investment. This paper makes three points. First, the historical pace of transmission investments will not be adequate to enhance grid reliability or to allow largescale penetration of renewable generating capacity. Second, the replacement of a vertically integrated electric utility industry in many parts of the country by a more disaggregated one composed of merchant generators has added to the challenge of transmission planning and investment. Third, the focus on federal funding for grid improvements is misplaced. There is no evidence that the private sector is incapable of raising the funds needed for critical investment, provided a rationalized regulatory structure is put into place. Making changes to our regulatory and political systems that facilitate transmission investment and siting will not be easy. But the costs of underinvesting in an improved and enlarged national transmission grid are high. Moving to a largely carbon-free economy by the middle of the century will require a transformation of the power system in this country, one that cannot be successful without a strong interstate high-voltage transmission backbone.Massachusetts Institute of Technology. Center for Energy and Environmental Policy Researc

A note on some properties of an efficient network resource allocation mechanism

We present some limiting properties of a network resource allocation mechanism known as the Progressive Second Price (PSP) auction. This mechanism aims at efficiently allocate network resources, such as bandwidth or buffer capacity, in an environment characterized by competing users; the PSP auction seeks to solve or at least to ameliorate congestion in a network demanding a low signalling burden between the auctioneer and the users, and solving the allocation problem of an (theoretically) infinitely divisible resource. The allocation rule is inspired in the second price (Vickrey) auction. Our analysis of the PSP auction explores its limiting properties, namely, how the allocation changes in the presence of a polarized set of users. A polarized set of users is a mixture of users of two types: high valuation, low demand users and low valuation, high demand users. Mechanisms such as auctions are becoming increasingly popular to handle the resource allocation problem in networks facing congestion, such as the access to Internet-based services

The Impact of Marginal Cost Pricing in Resource Allocation Games

A prelimiary version of this paper titled Efficiency and Stability of Nash Equilibria in Resource Allocation Games appeared in the Proceedings of the First International Conference on Game Theory for Networks (GAMENETS), 2009.We study resource allocation games, where users send data along paths and links in the network charge a price equal to marginal cost. When users are price taking, it is known that there exist distributed dynamics that converge towards a fully efficient Nash equilibrium. When users are price anticipating, however, a Nash equilibrium does not maximize total utility in general. In this paper, we explore the inefficiency of Nash equilibria for general networks and semi-convex marginal cost functions. While it is known that for mgeq 2 users, no efficiency guarantee is possible, we prove that an additional differentiability assumption on marginal cost functions implies a bounded efficiency loss of 2/(2m+1). For polynomial marginal cost functions with nonnegative coefficients we precisely characterize the price of anarchy. We also prove that the efficiency of Nash equilibria significantly improves if all users have the same utility function. We propose a class of distributed dynamics and prove that whenever a game admits a potential function, these dynamics globally converge to a Nash equilibrium. Finally, we show that in general the only} class of marginal cost functions that guarantees the existence of a potential function are affine linear functions

The asymptotic nucleolus of large monopolistic games

We study the asymptotic nucleolus of large differentiable monopolistic games. We show that if v is a monopolistic game which is a composition of a non-decreasing concave and differentiable function with a vector of measures, then v has an asymptotic nucleolus. We also provide an explicit formula for the asymptotic nucleolus of v and show that it coincides with the center of symmetry of the subset of the core of v in which all the monopolists obtain the same payoff. We apply this result to large monopolistic market games to obtain a relationship between the asymptotic nucleolus of the game and the competitive payoff distributions of the market

Competitive solutions for cooperating logistics providers

This paper discusses solutions for gain sharing in consortia of logistic providers where joint planning of truckload deliveries enables the reduction of empty kilometres. The highly competitive nature of freight transport markets necessitates solutions that distinguish among the logistics providers based on their characteristics, even in situations with two players only. We introduce desirable properties in these situations and propose a solution that satisfies such properties. By comparing the existing solutions against the introduced properties we demonstrate the advantages of our proposed solution