Discrete Implementation of the Groves-Ledyard Mechanism
AbstractWhen implementing an economic institution in the field or in the laboratory, the participants' action spaces and the institution's outcomes are typically discrete, while our theoretical analysis of the institution often assumes the sets are continuous. Predictions by the continuous model generally turn out to be good approximations to the performance of the discrete implementation. We present an example in which the continuous version has a unique and Pareto efficient equilibrium, but in which the discrete version often has vastly more equilibria, many of them far from efficient. We show that the same phenomenon appears in two experiments investigating the Groves-Ledyard mechanism, and that it may account for the experimental results.
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Bibliographic InfoPaper provided by Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University in its series Experimental Economics Center Working Paper Series with number 2007-07.
Date of creation: Sep 2007
Date of revision:
Other versions of this item:
- J. Swarthout & Mark Walker, 2009. "Discrete implementation of the Groves–Ledyard mechanism," Review of Economic Design, Springer, vol. 13(1), pages 101-114, April.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
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- Theodore Groves & John Ledyard, 1976.
"Optimal Allocation of Public Goods: A Solution to the 'Free Rider Problem',"
144, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- 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.
- Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
- Van Essen, Matthew & Lazzati, Natalia & Walker, Mark, 2012. "Out-of-equilibrium performance of three Lindahl mechanisms: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 74(1), pages 366-381.
- Otsubo, Hironori & Rapoport, Amnon, 2008. "Vickrey's model of traffic congestion discretized," Transportation Research Part B: Methodological, Elsevier, vol. 42(10), pages 873-889, December.
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