Three Methods to Share Joint Costs or Surplus

Abstract

We study cost sharing methods with variable demands of heterogeneous goods, additive in the cost function and meeting the dummy axiom. We consider four axioms: scale invariance (SI); demand monotonicity (DM); upper bound for homogeneous goods (UBH) placing a natural cap on cost shares when goods are homogeneous; average cost pricing for homogeneous goods (ACPH). The random order values based on stand alone costs are characterized by SI and DM. Serial costsharing, by DM and UB; the Aumann–Shapley pricing method, by SI and ACPH. No other combination of the four axioms is compatible with additivity and dummy. Journal of Economic Literature Classification Numbers: C71, D62, D63