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Negative Externalities and Evolutionary Implementation

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  • William H. Sandholm
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    Abstract

    We model externality abatement as an implementation problem. A social planner would like to ensure efficient behaviour among a group of agents whose actions are sources of externalities. However, the planner has limited information about the agents' preferences, and is unable to distinguish individual agents except through their action choices. We prove that if a concavity condition on aggregate payoffs is satisfied, the planner can guarantee that efficient behaviour is globally stable under a wide range of behaviour adjustment processes by administering a variable pricing scheme. Through a series of applications, we show that the concavity condition is naturally satisfied in settings involving negative externalities. We conclude by contrasting the performance of the pricing mechanism with that of a mechanism based on direct revelation and announcement dependent forcing contracts. Copyright 2005, Wiley-Blackwell.

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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2005.00355.x
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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Review of Economic Studies.

    Volume (Year): 72 (2005)
    Issue (Month): 3 ()
    Pages: 885-915

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    Handle: RePEc:oup:restud:v:72:y:2005:i:3:p:885-915

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    Cited by:
    1. Hofbauer,J. & Sandholm,W.H., 2003. "Evolution in games with randomly disturbed payoffs," Working papers 20, Wisconsin Madison - Social Systems.
    2. Sandholm, William H., 2010. "Decompositions and potentials for normal form games," Games and Economic Behavior, Elsevier, vol. 70(2), pages 446-456, November.
    3. Norovsambuu Tumennasan, 2011. "To Err is Human: Implementation in Quantal Response Equilibria," Economics Working Papers 2011-11, School of Economics and Management, University of Aarhus.
    4. Hirofumi Yamamura & Ryo Kawasaki, 2013. "Generalized average rules as stable Nash mechanisms to implement generalized median rules," Social Choice and Welfare, Springer, vol. 40(3), pages 815-832, March.
    5. Fosgerau, Mogens & Karlström, Anders, 2010. "The value of reliability," Transportation Research Part B: Methodological, Elsevier, vol. 44(1), pages 38-49, January.
    6. Hofbauer, Josef & Sandholm, William H., 2009. "Stable games and their dynamics," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1665-1693.e, July.
    7. Sandholm, William H., 2007. "Pigouvian pricing and stochastic evolutionary implementation," Journal of Economic Theory, Elsevier, vol. 132(1), pages 367-382, January.
    8. Alfredo Garcia & Mingyi Hong & Jorge Barrera, 2012. "“Cap and Trade” for Congestion Control," Dynamic Games and Applications, Springer, vol. 2(3), pages 280-293, September.
    9. Fujishima, Shota, 2013. "Evolutionary implementation of optimal city size distributions," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 404-410.

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