Allocation of mechanism costs


Response to the following problem:

Imagine two agents (e.g., regions of a certain country, being separated by a river) provide financial resources to construct a bridge connecting both riversides.

The corresponding construction costs are c = 1; the following mechanism of costs allocation is used. Each agent reports the estimate si of his or her "income" hi resulting from bridge operation. Construction of the bridge is authorized only if s1 + s2 ≥ c.

 

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Engineering Mathematics: Allocation of mechanism costs
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