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Efficient provision of public goods with endogenous redistribution

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  • Anderlini, L.
  • Siconolfi, P.

Abstract

We study a continuous and balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The Government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation it wants to implement. The mechanism then guarantees that initial endowments are re-allocated so that the chosen vector of Lindahl prices is indeed a Lindahl equilibrium, and implements the corresponding Lindahl allocation. Previously known mechanisms that implement the Lindahl correspondence do not allow the Government to choose which point on the Pareto frontier should be implemented, unless it can also redistribute initial endowments in the appropriate way. By contrast, in our case the Government directly controls the distribution of welfare in the economy. Finally, besides being balanced and continuous, our mechanism is `simple'. Each agent has to declare a desired increase in the amount of public good, and a vector of redistributive transfers of initial endowments (across other agents).

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9912.

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Date of creation: 01 Jan 1999
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Handle: RePEc:stn:sotoec:9912

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  1. Groves, Theodore & Ledyard, John O., 1978. "The Existence of Efficient and Incentive Compatible Equilibria with Public Goods," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 203, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Tian, Guoqiang, 1989. "Implementation of the Lindahl Correspondence by a Single-Valued, Feasible, and Continuous Mechanism," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(4), pages 613-21, October.
  3. Tian, Guoqiang, 1988. "On the constrained Walrasian and Lindahl correspondences," Economics Letters, Elsevier, vol. 26(4), pages 299-303.
  4. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, Econometric Society, vol. 45(4), pages 783-809, May.
  5. Postlewaite, Andrew & Wettstein, David, 1989. "Feasible and Continuous Implementation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(4), pages 603-11, October.
  6. Laffont, Jean-Jacques & Maskin, Eric, 1980. "A Differential Approach to Dominant Strategy Mechanisms," Econometrica, Econometric Society, Econometric Society, vol. 48(6), pages 1507-20, September.
  7. Hurwicz, Leonid, 1979. "On allocations attainable through Nash equilibria," Journal of Economic Theory, Elsevier, vol. 21(1), pages 140-165, August.
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Cited by:
  1. Guoqiang Tian, 2010. "Implementation of marginal cost pricing equilibrium allocations with transfers in economies with increasing returns to scale," Review of Economic Design, Springer, Springer, vol. 14(1), pages 163-184, March.
  2. Tian, Guoqiang, 2009. "Implementation of Pareto efficient allocations," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 113-123, January.

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