Bargaining over cost allocation rule under uncertainty of project cost

Abstract

Once the infrastructure project plan has been made, the design and construction will be carried out with so much sunk cost. Thus, each agent may commit to the project when the project plan is made. At a point of the agent's commitment, however, the project cost may be uncertain; each agent has to decide whether or not to commit to the project under an uncertain project cost. Although the allocated cost will be a critical factor for the agent's commitment, the agent cannot determine the true allocated cost because it is uncertain. In this case, the cost allocation rule which determines the allocated cost when the project cost is realized can be used by the agent. This study models the mechanism of choosing the cost allocation rule by the agent and discusses which coalition and cost allocation rule can be realized under the cost structure.