Allocation Inequality in Cost Sharing Problem

21 Pages Posted: 6 Nov 2017 Last revised: 13 Jul 2018

See all articles by Zhi Chen

Zhi Chen

City University of Hong Kong

Zhenyu Hu

National University of Singapore (NUS) - Department of Decision Sciences

Qinshen Tang

National University of Singapore (NUS) - Department of Analytics & Operations

Date Written: July 9, 2017

Abstract

This paper considers the problem of cost sharing, in which a coalition of agents, each endowed with an input, shares the output cost incurred from the total inputs of the coalition. Two allocations --- average cost pricing and the Shapley value --- are arguably the two most widely studied solution concepts to this problem. It is well known in the literature that the two allocations can be respectively characterized by different sets of axioms and they share many properties that are deemed reasonable. We seek to bridge the two allocations from a different angle --- allocation inequality. We use the partial order: Lorenz order (or majorization) to characterize allocation inequality and we derive simple conditions under which one allocation Lorenz dominates (or is majorized by) the other. Examples are given to show that the two allocations are not always comparable by Lorenz order. Our proof, built on establishing Lorenz order over certain input vectors, maybe of independent interest.

Keywords: cost sharing problem, average cost pricing, Shapley value, majorization, cooperative game

Suggested Citation

Chen, Zhi and Hu, Zhenyu and Tang, Qinshen, Allocation Inequality in Cost Sharing Problem (July 9, 2017). Available at SSRN: https://ssrn.com/abstract=2999238 or http://dx.doi.org/10.2139/ssrn.2999238

Zhi Chen

City University of Hong Kong ( email )

Hong Kong

Zhenyu Hu

National University of Singapore (NUS) - Department of Decision Sciences ( email )

NUS Business School
BIZ 1 Building, #02-01, 1 Business Link
117592
Singapore

Qinshen Tang (Contact Author)

National University of Singapore (NUS) - Department of Analytics & Operations ( email )

1 Business Link
Singapore, 117592
Singapore

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