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Out-of-equilibrium performance of three Lindahl mechanisms: Experimental evidence

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  • Van Essen, Matthew
  • Lazzati, Natalia
  • Walker, Mark

Abstract

We describe an experimental comparison of the out-of-equilibrium performance of three allocation mechanisms designed to achieve Lindahl outcomes as Nash equilibria: the mechanisms due to Walker (1981), Kim (1993), and Chen (2002). We find that Chenʼs mechanism, which is supermodular, converges closest and most rapidly to its equilibrium. However, we find that the properties that move subjects toward equilibrium in Chenʼs mechanism typically generate sizeable taxes and subsidies when not in equilibrium, and correspondingly large budget surpluses and deficits, which typically far outweigh the surplus created by providing the public good. The Kim mechanism, on the other hand, converges relatively close to its equilibrium and exhibits much better out-of-equilibrium efficiency properties.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 74 (2012)
Issue (Month): 1 ()
Pages: 366-381

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Handle: RePEc:eee:gamebe:v:74:y:2012:i:1:p:366-381

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Public goods; Mechanism design; Lindahl;

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References

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  1. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  2. Walker, Mark, 1981. "A Simple Incentive Compatible Scheme for Attaining Lindahl Allocations," Econometrica, Econometric Society, vol. 49(1), pages 65-71, January.
  3. Yan Chen, 2002. "A family of supermodular Nash mechanisms implementing Lindahl allocations," Economic Theory, Springer, vol. 19(4), pages 773-790.
  4. Yan Chen & Fang-Fang Tang, 1998. "Learning and Incentive-Compatible Mechanisms for Public Goods Provision: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 633-662, June.
  5. Kim, Taesung, 1993. "A stable Nash mechanism implementing Lindahl allocations for quasi-linear environments," Journal of Mathematical Economics, Elsevier, vol. 22(4), pages 359-371.
  6. J. Todd Swarthout & Mark Walker, 2007. "Discrete Implementation of the Groves-Ledyard Mechanism," Experimental Economics Center Working Paper Series 2007-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  7. Yan Chen & Robert S. Gazzale, 2004. "When Does Learning in Games Generate Convergence to Nash Equilibria? The Role of Supermodularity in an Experimental Setting," Department of Economics Working Papers 2004-02, Department of Economics, Williams College.
  8. Chen, Yan & Plott, Charles R., 1996. "The Groves-Ledyard mechanism: An experimental study of institutional design," Journal of Public Economics, Elsevier, vol. 59(3), pages 335-364, March.
  9. Vega-Redondo, Fernando, 1989. "Implementation of Lindahl equilibrium: an integration of the static and dynamic approaches," Mathematical Social Sciences, Elsevier, vol. 18(3), pages 211-228, December.
  10. Hurwicz, L, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 217-25, April.
  11. Healy, Paul J., 2006. "Learning dynamics for mechanism design: An experimental comparison of public goods mechanisms," Journal of Economic Theory, Elsevier, vol. 129(1), pages 114-149, July.
  12. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  13. AMIR, Rabah, 2003. "Supermodularity and complementarity in economics: an elementary survey," CORE Discussion Papers 2003104, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. Matt Van Essen, 2012. "A note on the stability of Chen’s Lindahl mechanism," Social Choice and Welfare, Springer, vol. 38(2), pages 365-370, February.
  2. Healy, Paul J. & Mathevet, Laurent, 2012. "Designing stable mechanisms for economic environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
  3. Matt Van Essen, 2012. "Information complexity, punishment, and stability in two Nash efficient Lindahl mechanisms," Review of Economic Design, Springer, vol. 16(1), pages 15-40, March.

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