Methods for apportioning costs among participants in regional systems

This paper first examines three methods currently used for apportioning the costs of joint waste water treatment facilities among users. The methods are cost sharing based on the measure of pollution, cost sharing based on single plant costs with a rebate proportional to the measure of pollution, and cost sharing based on the separable costs remaining benefit method. Through the use of numerical and theoretical arguments it is demonstrated that often these methods do not provide an apportionment that satisfies all the people involved and that a potential participant may find it economically advantageous not to join the regional plan and may thereby force the adoption of a system that is, in total, more costly. These difficulties will frequently arise when any plan is subjected to the pressures of ‘free market‘ bargaining. Two additional methods relying on game-theoretic concepts are then introduced to deal with the problem. These methods, which are practical, can satisfactorily solve problems that are not tractable when other techniques are used. Also, the basically perverse characteristics of situations requiring cost sharing are demonstrated by using the bargaining methods to prove that some cost-sharing problems have no unique solutions and that others have no viable solution at all unless the regional authority can obtain a subsidy.