COST-SHARING UNDER INCREASING RETURNS - A COMPARISON OF SIMPLE MECHANISMS

A technology with decreasing marginal costs is used by agents with equ al rights. Each agent demands a quantity of output and costs are divid ed by means of a fixed formula. Several such mechanisms are compared f or the existence of Nash equilibrium demand profiles and for the equit y properties of these equilibria. Among three mechanisms, average cost pricing, the Shapley-Shubik cost sharing, and serial cost-sharing, on ly the latter two possess at least one Nash equilibrium on a reasonabl e domain of individual preferences. Only the serial cost sharing equil ibria pass the equity tests of No Envy and Stand Alone cost. (C) 1996 Academic Press, Inc.