Decentralized Pricing in Minimum Cost Spanning Trees

16 Pages Posted: 3 Nov 2008 Last revised: 6 Nov 2008

See all articles by Jens Leth Hougaard

Jens Leth Hougaard

University of Copenhagen - Department of Economics

Hervé Moulin

Rice University - Department of Economics

Lars Peter Østerdal

University of Southern Denmark, Department of Business and Economics

Date Written: October 31, 2008

Abstract

In the minimum cost spanning tree model we consider decentralized pricing rules, i.e. rules that cover at least the efficient cost while the price charged to each user only depends upon his own connection costs. We define a canonical pricing rule and provide two axiomatic characterizations. First, the canonical pricing rule is the smallest among those that improve upon the Stand Alone bound, and are either superadditive or piece-wise linear in connection costs. Our second, direct characterization relies on two simple properties highlighting the special role of the source cost.

Keywords: Pricing rules, Minimum cost spanning trees, Canonical pricing rule, Stand-alone cost, Decentralization

Suggested Citation

Hougaard, Jens Leth and Moulin, Hervé and Østerdal, Lars Peter, Decentralized Pricing in Minimum Cost Spanning Trees (October 31, 2008). Univ. of Copenhagen Dept. of Economics Discussion Paper No. 08-24, Available at SSRN: https://ssrn.com/abstract=1292734 or http://dx.doi.org/10.2139/ssrn.1292734

Jens Leth Hougaard

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Hervé Moulin

Rice University - Department of Economics ( email )

6100 South Main Street
MS 22, P.O. Box 1892
Houston, TX 77005
United States
713-348-3312 (Phone)
713-348-6329 (Fax)

Lars Peter Østerdal (Contact Author)

University of Southern Denmark, Department of Business and Economics ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

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