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

Abstract

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.