Incentive-compatible cost-allocation schemes

This work was motivated by a problem regarding a group of public utilities located in relatively close proximity to each other. Some of these utilities are confronted by a shortage of capacity while others have excess capacity. The buyers cooperate to purchase in the most efficient way the quantities they need (which are private information). The total joint cost is then allocated by an incentive compatible rule (i.e., a rule which induces the buyers to reveal their true demands). We show that for a large class of problems there are cost-allocation schemes which are incentive compatible and yield individually rational and efficient outcomes. Journal of Economic Literature Classification Numbers: C71, C72, D61, D82, L94.