Abstract
In this paper, we analyze sequential bankruptcy problems, which generalize bankruptcy problems. They cover the problems of sharing water in a transboundary river and of allocating expedition rewards in projects. We propose the upwards mechanism for generalizing rules for bankruptcy problems to rules for sequential bankruptcy problems. Further, we characterize the upwards constrained equal awards, the upwards constrained equal losses, and the upwards proportional rules on the basis of upwards composition and upwards path independence.
Highlights
Bankruptcy problems are one of the simplest, yet most interesting, economic problems
We introduce sequential bankruptcy problems, which form a theoretical framework that supports the works of Ansink and Weikard (2012), Estévez-Fernández et al (2007), and Estévez-Fernández (2012)
We focus on differences among the three mechanisms based on inheritance of well-established properties for bankruptcy rules to the setting of sequential bankruptcy rules
Summary
Bankruptcy problems are one of the simplest, yet most interesting, economic problems. We introduce three mechanisms for generalizing rules for bankruptcy problems to rules for sequential bankruptcy problems: the upwards, the downwards, and the two-steps mechanisms These names are inspired in the literature of sharing water in a river. Given a bankruptcy rule f , the upwards mechanism generates a sequential bankruptcy rule by starting to share the estate “downstream” and, subsequently, moving upwards while updating the claims at each stage of the procedure. Given a bankruptcy rule f , the downwards mechanism generates a sequential bankruptcy rule by starting to share the estate “upstream” while considering the total claim of the “downstream” groups and, subsequently, moving downwards while updating the downwards estate at each stage of the procedure.
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