Economic Issues in Shared Infrastructures

In designing and managing a shared infrastructure, one must take account of the fact that its participants will make self-interested and strategic decisions about the resources that they are willing to contribute to it and/or the share of its cost that they are willing to bear. Taking proper account of the incentive issues that thereby arise, we design mechanisms that, by eliciting appropriate information from the participants, can obtain for them maximal social welfare, subject to charging payments that are sufficient to cover costs. We show that there are incentivizing roles to be played both by the payments that we ask from the participants and the specification of how resources are to be shared. New in this paper is our formulation of models for designing optimal management policies, our analysis that demonstrates the inadequacy of simple sharing policies, and our proposals for some better ones. We learn that simple policies may be far from optimal and that efficient policy design is not trivial. However, we find that optimal policies have simple forms in the limit as the number of participants becomes large.