Equity Basis Selection in Allocation Environments

Aadland, David and Kolpin, Van (2008): Equity Basis Selection in Allocation Environments.

Abstract

The successful formation and long-term stability of a cooperative venture is often linked to the perceived fairness of the associated cost or resource allocation. In particular, the effectiveness of such collaborations can be hampered by the lack of a consensus view on what basis should be used for gauging an allocation’s “fairness.” Standards of equity in traditional cost-sharing applications could be assessed on many dimensions: per capita, per unit of demand, or per unit of revenue, to mention a few. This multiplicity of logically compelling “equity bases” is a feature common to many practical cost-sharing applications. Our analysis shows that features of the allocation environment are capable of explaining a substantial amount of the variation in the equity bases employed in practice and are consistent with the axiomatic principles of collective behavior.

• Item Type: MPRA Paper
• Language: English
• Keywords: cooperative games; cost allocation; equity; probit model
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C71 - Cooperative Games; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities

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