Game theory and cost allocation problems

S.H. Tijs, Theo Driessen

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Abstract

Problems of allocating joint costs in a reasonable way arise in many practical situations where people decide to work together to save costs. Cost allocation methods based on game theoretical concepts take into account the strategic aspects of cost allocation situations. We give a survey of cost allocation methods based on the nucleolus and the Shapley value, and introduce also a new one, the so-called cost gap allocation method which is based on the τ-value. It is shown that for some large subclasses of cost allocation problems this new cost allocation method coincides with old separable cost methods proposed in the thirties by the Tennessee Valley Authority and also with the separable costs-remaining benefits (SCRB) method. Properties of this cost gap allocation method are also treated.
Original languageUndefined
Pages (from-to)1015-1028
JournalManagement science
Volume32
Issue number8
DOIs
Publication statusPublished - 1986

Keywords

  • IR-98520

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