The linear cost equivalent rule: A solution procedure for heterogeneous joint production problems

We propose an extension of the constant-returns-equivalent (CRE) solution for allocating joint costs/benefits among homogeneous contributors to environments in which contributors are heterogeneous. For the domain of quasilinear economies, we axiomatically characterize this solution by means of three...

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Bibliographic Details
Published in:Mathematical social sciences 2006, Vol.51 (1), p.70-80
Main Authors: Arguedas, Carmen, Kranich, Laurence
Format: Article
Language:English
Subjects:
Allocation rule
Allocative efficiency
Business economics
Constant-returns-equivalent
Cost analysis
Economic models
Heterogeneous activities
Linear models
Production management
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Summary:We propose an extension of the constant-returns-equivalent (CRE) solution for allocating joint costs/benefits among homogeneous contributors to environments in which contributors are heterogeneous. For the domain of quasilinear economies, we axiomatically characterize this solution by means of three axioms: efficiency, free access to linear economies, and a weak version of technological monotonicity which considers the different roles of the agents in generating the costs. Our proposal is also immune to arbitrary changes in the units of account of the various activities.
ISSN:0165-4896
1879-3118
DOI:10.1016/j.mathsocsci.2005.07.004