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IMA Journal of Management Mathematics 1992 4(1):19-33; doi:10.1093/imaman/4.1.19
© 1992 by Institute of Mathematics and its Applications
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Dividing credit-card costs fairly

L. C. THOMAS

Department of Business Studies, University of Edinburgh

Received on 1 October 1991. Revision received 12 December 1991. Major changes have occurred in the U.K. in the distribution of the costs associated with credit-card operations, including the introduction of annual fees to cardholders, the lowering of merchant service charges, and the increasing proportion of cardholders paying off their monthly balances completely. The paper describes these changes and compares briefly the resulting fee and cost structure with that in the USA. It then develops a model for distribution of the costs as a many-person cooperative game, akin to Littlechild's work on the distribution of costs in public utilities. It uses this to discuss the results of applying different concepts of fairness to the distribution of costs. Finally it examines what effect there would be on these ‘fair’ divisions of costs if changes in credit scoring start to change the proportion of defaulters and the proportion of those who pay no interest.


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