INCENTIVE-COMPATIBLE COST-ALLOCATION SCHEMES

This work was motivated by a problem regarding a group of public utili ties located in relatively close proximity to each other. Some of thes e utilities are confronted by a shortage of capacity while others have excess capacity. The buyers cooperate to purchase in the most efficie nt way the quantities they need (which are private information). The t otal joint cost is then allocated by an incentive compatible rule (i.e ., a rule which induces the buyers to reveal their true demands). We s how that for a large class of problems there are cost-allocation schem es which are incentive compatible and yield individually rational and efficient outcomes. (C) 1994 Academic Press, Inc.