We study environments where a production process is jointly shared by a finite group of agents. The social decision involves the determination of input contribution and output distribution. We define a competitive solution when there is decreasing-returns-to-scale which leads to a Pareto optimal outcome. Since there is a finite number of agents, the competitive solution is prone to manipulation. We construct a mechanism for which the set of Nash equilibria coincides with the set of competitive solution outcomes. We define a marginal-cost-pricing equilibrium (MCPE) solution for environments with increasing returns to scale. These solutions are Pareto optimal under certain conditions. We construct another mechanism that realizes the MCPE.
Bibliographical noteFunding Information:
We wish to thank Andrew Postlewaite and a referee for helpful comments. We are grateful to the participants of the Stony Brook International Conference on Game Theory . Also, we gratefully acknowledge the support from the Kreitman Foundation and the Monaster Center for Economic Research.
- Cost sharing
- Increasing returns to scale
- Marginal-cost-pricing equilibrium
ASJC Scopus subject areas
- Economics and Econometrics
- Applied Mathematics