Rationalizing Sharing Rules

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Abstract

A partnership can yield a return—a loss or a profit relative to the partners’ investments. How should the partners share the return? We identify the shar-ing rules satisfying classical properties (symmetry, consistency, and continuity) and avoiding arbitrary bounds on a partner’s share. We show that any such rule can be rationalized in the sense that its recommendations are aligned with those maximizing a separable welfare function. Among these rules, we charac-terize those formalizing different notions of proportionality and, in particular, a convenient subclass specified by a single inequality aversion parameter. We also explore when a rule can be rationalized by a more general welfare function. Our central results extend to a wider class of resource allocation problems.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherDepartment of Economics. Copenhagen Business School
Number of pages36
Publication statusPublished - 2024
SeriesDepartment of Economics. Copenhagen Business School. Working paper
Number17-2024

Keywords

  • Sharing
  • Consistency
  • Axioms
  • Welfare maximization

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