| A group of individuals wish to enter into a relationship to construct an excludable public good. A contract that allocates the fixed costs of the good and the individuals' benefits must be carefully designed. We perform a characterization of mechanisms that allocate fixed costs and we introduce a new axiom to more appropriately perform this characterization. We examine the implementation of cost sharing mechanisms, and we characterize the class of strategy-proof and voluntary participatory mechanisms. For the domain of convex preferences and the further restricted domain of quasilinear preferences, this class of mechanisms is very small. It includes only mechanisms in which firms can participate at a fixed cost share. We introduce a more appropriate requirement, sequential strategy-proofness, that expands the set of feasible cost sharing rules to include marginal-pricing arrangements. We identify examples in an incomplete information environment where marginal prices improve efficiency.;We expand our theoretical analysis by examining the incentive effects of a profit allocation mechanism on a group's productive input into the development of a pure public good. We show that no multiple profit function sharing rule will solve the free rider problem in the complete information case. We describe the necessary conditions for profit sharing rules that induce "second-best" levels of productive input. We also characterize these second best profit sharing contracts based on the substitutability of the firms' inputs, the relative profitabilities and cost effectiveness of the firms, and the relative importance of each firm in technology development.;We substantiate the theoretical findings in a case study analysis. We identify potential extensions of the theory to encourage a better representation of actual consortia. We examine the cost and benefit allocation rules in a case study format for three consortia. We develop an understanding of how these rules are implemented and their effect on economic efficiency. The case study subjects include the Microelectronics and Computer Technology Corporation (MCC), the Advanced Television Technology Center (ATTC), and a consortia management firm, the International Computer Security Association (ICSA). |
