The pseudo‐average rule: bankruptcy, cost allocation and bargaining

The pseudo‐average rule: bankruptcy, cost allocation and bargaining

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Article ID: iaor20112019
Volume: 73
Issue: 1
Start Page Number: 55
End Page Number: 73
Publication Date: Feb 2011
Journal: Mathematical Methods of Operations Research
Authors: ,
Keywords: bankruptcy, cost allocation
Abstract:

A division rule for claims problems, also known as bankruptcy or rationing problems, based on the pseudo‐average solution is studied (for 2‐person problems). This solution was introduced in Moulin (Jpn Econ Rev 46:303–332, 1995) for discrete cost allocation problems. Using the asymptotic approach, we obtain a division rule for claims problems. We characterize the division rule axiomatically and show that it coincides with the rule associated to the equal area bargaining solution (this is not true for n = 3). Moreover, following Moulin and Shenker (J Econ Theor 64:178–201, 1994), we show that its associated solution for continuous homogeneous goods is precisely the continuous pseudo‐average solution.

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