An Axiomatic Approach to Cost Allocation for Public Investment

Abstract

A previously presented charge scheme for public investments is derived here from a set of axioms. It is argued that these axioms embody a definition of equity in allocating the costs of a public facility and could serve as a constitution which would be agreed on by users of a public facility. Consideration is also given to optimality properties of the charge scheme in encouraging the formation of coalitions to undertake joint investments.

Compensatory Transfers in Two-Player Decision Problems

“…Positive monetary transfers must be paid in at least some cases. 18 Independence of Utility Origins plays the same role in our theory as Independence of Linear Transformations of Utility Scales plays in Nash-type theories. Numerical representation of the preferences, incorporating free parameters with no behavioral meaning, should not affect the real bargaining results.…”

“…The evaluation scale used in a numerical representation of a quasi-linear utility function is determined only up to an additive constant. This constant should not affect the real aspects of the solution -the selection of the action to be taken and the transfers to be made 18 . The first question one might ask is whether compensatory transfers should be paid at all.…”

“…4 See Moulin [24] and Young [52], for a full discussion. Also Moulin [21] in Arrow, Sen and Suzumura[1], Champsaur [5], Kaneko [17], Loehmann and Whinston [18], and Chun [7][8] [9].…”

Allocating joint costs by means of the nucleolus

“…Shubik (1962) made one of the first applications of game theory to the study of the joint costs allocation problem. Subsequently many authors (Litflechild 1975;Loehman and Whinston 1974;Champsaur 1975;Sharkey 1982a) have established the methodological similarity between this problem and the problem of finding a solution in an n-person cooperative game. Specifically, consider an enterprise producing a certain service for a set of N markets.…”

Computer science and decision theory

“…Examples of such applications in the past include allocating runway fees to different users of an airport, highway fees to different size trucks, costs to different universities sharing library facilities, fair allocation of telephone calling charges among users, and compensation of agents who have to wait in a queue [268,269,277,321,389,394,404,409,429]. For cost-sharing problems with submodular costs, Moulin and Shenker [301,302] characterized the family of cost-sharing mechanisms that are "budgetbalanced" and "group strategyproof" (in the sense that the dominant strategy for a coalition is to reveal the true value of their utility).…”