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About: Cost-sharing mechanism     Goto   Sponge   NotDistinct   Permalink

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In economics and mechanism design, a cost-sharing mechanism is a process by which several agents decide on the scope of a public product or service, and how much each agent should pay for it. Cost-sharing is easy when the marginal cost is constant: in this case, each agent who wants the service just pays its marginal cost. Cost-sharing becomes more interesting when the marginal cost is not constant. With increasing marginal costs, the agents impose a negative externality on each other; with decreasing marginal costs, the agents impose a positive externality on each other (see ). The goal of a cost-sharing mechanism is to divide this externality among the agents.