The linear cost equivalent rule: A solution procedure for heterogeneous joint production problems

Abstract

We propose an extension of the constant-returns-equivalent (CRE) solution for allocating joint costs/benefits among homogeneous contributors to environments in which contributors are heterogeneous. For the domain of quasilinear economies, we axiomatically characterize this solution by means of three axioms: efficiency, free access to linear economies, and a weak version of technological monotonicity which considers the different roles of the agents in generating the costs. Our proposal is also immune to arbitrary changes in the units of account of the various activities.