Economic Theory

, Volume 18, Issue 3, pp 511–533 | Cite as

Strategyproof sharing of submodular costs:budget balance versus efficiency

  • Hervé Moulin
  • Scott Shenker
Research Article

Summary.

A service is produced for a set of agents. The service is binary, each agent either receives service or not, and the total cost of service is a submodular function of the set receiving service. We investigate strategyproof mechanisms that elicit individual willingness to pay, decide who is served, and then share the cost among them. If such a mechanism is budget balanced (covers cost exactly), it cannot be efficient (serve the surplus maximizing set of users) and vice-versa. We characterize the rich family of budget balanced and group strategyproof mechanisms and find that the mechanism associated with the Shapley value cost sharing formula is characterized by the property that its worst welfare loss is minimal. When we require efficiency rather than budget balance – the more common route in the literature – we find that there is a single Clarke-Groves mechanism that satisfies certain reasonable conditions: we call this the marginal cost pricing mechanism. We compare the size of the marginal cost pricing mechanism's worst budget surplus with the worst welfare loss of the Shapley value mechanism.

Keywords and Phrases:Cost-sharing, Strategyproofness, Shapley value, Marginal cost pricing. 
JEL Classification Numbers:D60, C71, D44. 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2001

Authors and Affiliations

  • Hervé Moulin
    • 1
  • Scott Shenker
    • 2
  1. 1.Department of Economics, MS 22, Rice University, 6100 Main Street, Houston, TX 77005, USA (e-mail: moulin@rice.edu) US
  2. 2.International Computer Science Institute, Suite 600, 1947 Center Street, Berkeley, CA 94704, USA (e-mail: shenker@icsi.berkeley.edu) US

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