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No Externalities: A Characterization of Efficiency and Incentive Compatibility with Public Goods

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  • Joseph M. Ostroy

    (UCLA)

  • Uzi Segal

    ()
    (Boston College)

Abstract

We show that efficient anonymous incentive compatible (dominant strategy) mechanisms for public goods eliminate externalities, i.e., each individual is unable to change the welfare of anyone else. The characterization is used to derive existence and non-existence results for models with a finite number of individuals and to explain existence results in the continuum. A similar characterization and conclusions are demonstrated for private goods in [7]. However, unlike private goods, elimination of externalities with public goods implies that individuals cannot change the outcome. Hence, such mechanisms provide only weak incentives for truth-telling.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 769.

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Date of creation: 22 Sep 2010
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Handle: RePEc:boc:bocoec:769

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Keywords: Public goods; private goods; no externalities; incentive compatibility; duality;

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References

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  1. Walker, Mark, 1980. "On the Nonexistence of a Dominant Strategy Mechanism for Making Optimal Public Decisions," Econometrica, Econometric Society, vol. 48(6), pages 1521-40, September.
  2. Makowski, Louis & Ostroy, Joseph M., 1992. "Vickrey-Clarke-Groves mechanisms in continuum economies : Characterization and existence," Journal of Mathematical Economics, Elsevier, vol. 21(1), pages 1-35.
  3. James Schummer, 1997. "Manipulation Through Bribes," Discussion Papers 1207, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 23-38, January.
  5. H. Moulin, 1980. "On strategy-proofness and single peakedness," Public Choice, Springer, vol. 35(4), pages 437-455, January.
  6. Groves, Theodore & Loeb, Martin, 1975. "Incentives and public inputs," Journal of Public Economics, Elsevier, vol. 4(3), pages 211-226, August.
  7. Rob, Rafael, 1982. "Asymptotic efficiency of the demand revealing mechanism," Journal of Economic Theory, Elsevier, vol. 28(2), pages 207-220, December.
  8. Philippe Jehiel & Moritz Meyer-ter-Vehn & Benny Moldovanu & William R. Zame, 2006. "The Limits of ex post Implementation," Econometrica, Econometric Society, vol. 74(3), pages 585-610, 05.
  9. Makowski, Louis & Ostroy, Joseph M. & Segal, Uzi, 1999. "Efficient Incentive Compatible Economies Are Perfectly Competitive," Journal of Economic Theory, Elsevier, vol. 85(2), pages 169-225, April.
  10. Shigehiro Serizawa, 1999. "Strategy-Proof and Symmetric Social Choice Functions for Public Good Economies," Econometrica, Econometric Society, vol. 67(1), pages 121-146, January.
  11. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  12. Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 263-82, April.
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Cited by:
  1. Makowski, Louis & Ostroy, Joseph M., 2013. "From revealed preference to preference revelation," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 71-81.

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