Allocation Inequality in Cost Sharing Problem

24 Pages Posted: 6 Nov 2017 Last revised: 6 Nov 2021

See all articles by Zhi Chen

Zhi Chen

Department of Decisions, Operations and Technology, CUHK Business School, The Chinese University of Hong Kong

Zhenyu Hu

National University of Singapore (NUS)

Qinshen Tang

Nanyang Business School, Nanyang Technological University

Date Written: September 18, 2020

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 solving minimization problems of certain Schur-convex or Schur-concave objective functions over input vectors, may be 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 (September 18, 2020). Journal of Mathematical Economics, 91, 111-120, Available at SSRN: https://ssrn.com/abstract=2999238 or http://dx.doi.org/10.2139/ssrn.2999238

Zhi Chen

Department of Decisions, Operations and Technology, CUHK Business School, The Chinese University of Hong Kong ( email )

Room 952, 9/F, Cheng Yu Tong Building
The Chinese University of Hong Kong, Shatin.
Hong Kong
Hong Kong

Zhenyu Hu

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Qinshen Tang (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

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