DISTRIBUTIVE AND ADDITIVE COSTSHARING
OF AN HOMOGENEOUS GOOD


Herv( Moulin
Department of Economics
Duke University
Durham, NC 27708-0097
Phone: 919-660-1816
(moulin@econ.duke.edu)


Scott Shenker
Palo Alto Research Center
Xerox Corporation
3333 Coyote Hill Drive
Palo Alto, CA 94304-1314
Phone: 415-812-4840
(shenker@parc.xerox.com)

Abstract
	We consider the sharing of the cost of producing a homogeneous good when the technology has variable returns and individuals have arbitrary demands.  We give a full analytical description of the family of costsharing methods that allocate costs in proportion to demands when returns are constant, and commute with the additivity and composition of cost functions.
	Two prominent methods in this family are average cost pricing and incremental costsharing.  We show that all other methods in the family combine elements of the average cost and incremental ones.  Serial costsharing stands out prominently in the family, whereas the Shapley-Shubik method, and all values from the associated stand alone cooperative game, are excluded.

Keywords: cost sharing, additivity, distributivity, average cost pricing, serial cost sharing.

JEL Classification Numbers:

Acknowledgements: We are grateful to the Editor and a referee for many constructive criticisms of an earlier version of the paper.