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Second price mechanism (Vickrey mechanism), Quasi-linear preference, Strategy-proofness, Envy-freeness, D44, D63, C72,

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A waste disposal facility has to be sited in one of several districts producing different amounts of waste. The construction cost of the facility depends on where it is sited. When a district accepts the facility, it bears a disutility. The problem here is to choose a siting district and to share the construction cost while considering fair compensation for the siting district. We provide an axiomatic framework to analyze this problem and seek normatively desirable and practical decision rules. A fair pricing rule is one that selects a district so as to minimize the social loss, applies a negative price to waste according to the social loss involved, and provides full compensation to the siting district. We show that this rule is a unique rule that satisfies certain requirements of efficiency, fairness, and robustness regarding the strategic transfers of waste. We then establish the nearly robustness of this rule to the misrepresentation of disutility information. This paper is a much extended version of Chapter 2 of my dissertation submitted to the University of Rochester in March 2005, and was formerly circulated as "A Normative Theory for the NIMBY Problem". I am most grateful to my advisor William Thomson for his continuous encouragement and support, and Fuhito Kojima and Yusuke Samejima for their very valuable comments. I also thank helpful comments from an associate editor, a referee

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