Shapley Cost Allocation Coincides With Relative Status: The Case of Skyscrapers

42 Pages Posted: 18 Jun 2004

See all articles by Danny Ben-Shahar

Danny Ben-Shahar

Tel Aviv University

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Eyal Sulganik

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship

Date Written: July 2007

Abstract

Empirical evidence shows that the value of units in a building generally rises with their floor level due to features such as the better view and lesser noise experienced in higher stories. We adopt a theoretical approach for examining the value of units in different floors based on the allocation of land and construction cost among the stories of the building. Relying on cooperative game theory analysis, we propose the Shapley value approach as a mechanism for allocating these costs. We examine the allocation mechanism and derive several closed-form properties by which the value pattern of stories in a building is rationalized. Furthermore, following Lakoff and Johnson (1980), we argue that agents achieve greater status from occupying higher stories because of inherent cognitive motives. We thus constitute a Relative Status function and formally show that its properties coincide with those of the difference between the costs allocated to any two stories in the building, thereby, derive a new property to the Shapley solution. Finally, we empirically test the derived Shapley cost allocation properties and the attained results are consistent with our major predictions.

JEL Classification: M40, M46

Suggested Citation

Ben-Shahar, Danny and Deng, Yongheng and Sulganik, Eyal, Shapley Cost Allocation Coincides With Relative Status: The Case of Skyscrapers (July 2007). Available at SSRN: https://ssrn.com/abstract=556707 or http://dx.doi.org/10.2139/ssrn.556707

Danny Ben-Shahar (Contact Author)

Tel Aviv University ( email )

Tel Aviv
Israel

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

Eyal Sulganik

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-9572307 (Phone)
972-9-9568605 (Fax)

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