The game theory in cost allocation

• Main Authors: Chua, Valereen, Orbe, Eliza Mae
• Format: text
• Language: English
• Published: Animo Repository 2009
• Subjects: Game theory; Cost allocation; Physical Sciences and Mathematics
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/7804
• Institution: De La Salle University

This paper is a partial exposition of the article written by Hobart Peyton Young entitled Cost Allocation [11], which can be found in the Handbook of Game Theory with Economic Applications by Robert J. Aumann and Sergiu Hart. We presented the basic concepts of cooperative game theory which is very useful in the analyses of cooperative game models and illustrated some allocation methods. This paper responded to the dilemma, If the grand coalition forms, how must the profit or cost be divided among the players? . We enumerated sufficient and necessary conditions in order to create an idealized distribution of resources. In the end, the answer to the question, Who needs whom more? determines which proposed allocation will be taken into account. We offered different possible solutions to the problems of cost allocation. We analyzed various allocation methods and illustrated it on a TVA project. We gave a more detailed explanation to the Alternate Cost Avoided Method. The results of this thesis can be applied to real scenarios of similar problems.