Efficient liability assignment under shock propagation
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arXiv
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| Main Authors: | , , , |
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| Format: | Preprint |
| Published: |
2026
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| _version_ | 1866911684401037312 |
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| author | Gudmundsson, Jens Hougaard, Jens Leth Makihara, Kohmei Rigos, Alexandros |
| author_facet | Gudmundsson, Jens Hougaard, Jens Leth Makihara, Kohmei Rigos, Alexandros |
| contents | We study a model in which shocks propagate along a path chosen by agents embedded in a network. When a shock hits an agent, the affected agent cancels one of her outgoing edges. This cancellation cascades sequentially along a chosen path until reaching a terminal agent, resulting in a systemic cost equal to the sum of individual cancellation losses. A liability rule determines agent payments for realized losses, and we seek to implement efficient path selection in the induced sequential-move game. Our main axiomatic result characterizes a family of rules, which set each agent's liability to be proportional to the system's total realized losses with agent weights depending only on the network structure. We propose a way to set such weights based on a simple path-based procedure that assigns equal importance to all non-sink agents along each path and then aggregates these contributions across paths. These weights coincide with the Shapley value of an associated "path-counting" cooperative game and can be computed in polynomial time. A simulation study illustrates the mechanics of our approach. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2605_14485 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | Efficient liability assignment under shock propagation Gudmundsson, Jens Hougaard, Jens Leth Makihara, Kohmei Rigos, Alexandros Theoretical Economics We study a model in which shocks propagate along a path chosen by agents embedded in a network. When a shock hits an agent, the affected agent cancels one of her outgoing edges. This cancellation cascades sequentially along a chosen path until reaching a terminal agent, resulting in a systemic cost equal to the sum of individual cancellation losses. A liability rule determines agent payments for realized losses, and we seek to implement efficient path selection in the induced sequential-move game. Our main axiomatic result characterizes a family of rules, which set each agent's liability to be proportional to the system's total realized losses with agent weights depending only on the network structure. We propose a way to set such weights based on a simple path-based procedure that assigns equal importance to all non-sink agents along each path and then aggregates these contributions across paths. These weights coincide with the Shapley value of an associated "path-counting" cooperative game and can be computed in polynomial time. A simulation study illustrates the mechanics of our approach. |
| title | Efficient liability assignment under shock propagation |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2605.14485 |