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Voting and Lottery Drafts as Efficient Public Goods Mechanisms

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  • John O. Ledyard
  • Thomas R. Palfrey
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    Abstract

    This paper characterizes interim efficient mechanisms for public good production and cost allocation in a two-type environment with risk neutral, quasi-linear preferences and fixed size projects, where the distribution of the private good, as well as the public goods decision, affects social welfare. An efficient public good decision can always be accomplished by a majority voting scheme, where the number of ``YES'' votes required depends on the welfare weights in a simple way. The results are shown to have a natural geometry and an intuitive interpretation. We also extend these results to allow for restrictions on feasible transfer rules, ranging from the traditional unlimited transfers to the extreme case of no transfers. For a range of welfare weights, an optimal scheme is a two-stage procedure which combines a voting stage with a second stage where an even-chance lottery is used to determine who pays. We call this the ``lottery draft mechanism''. Since such a cost-sharing scheme does not require transfers, it follows that in many cases transfers are not necessary to achieve the optimal allocation. For other ranges of welfare weights the second stage is more complicated, but the voting stage remains the same. If transfers are completely infeasible, randomized voting rules may be optimal. The paper also provides a geometric characterization of the effects of voluntary participation constraints. JEL Classification: 024, 026

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    Bibliographic Info

    Paper provided by EconWPA in its series Game Theory and Information with number 9405003.

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    Date of creation: 20 May 1994
    Date of revision: 22 May 1994
    Handle: RePEc:wpa:wuwpga:9405003

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    References

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    1. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
    2. Palfrey, Thomas R. & Rosenthal, Howard, 1984. "Participation and the provision of discrete public goods: a strategic analysis," Journal of Public Economics, Elsevier, vol. 24(2), pages 171-193, July.
    3. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Werner Güth & Martin Hellwig, 1986. "The private supply of a public good," Journal of Economics, Springer, vol. 5(1), pages 121-159, December.
    5. Palfrey, Thomas R. & Rosenthal, Howard, 1991. "Testing for effects of cheap talk in a public goods game with private information," Games and Economic Behavior, Elsevier, vol. 3(2), pages 183-220, May.
    6. Steven A. Matthews, 1983. "On the Implementability of Reduced Form Auctions," Discussion Papers 560, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Border, Kim C, 1991. "Implementation of Reduced Form Auctions: A Geometric Approach," Econometrica, Econometric Society, vol. 59(4), pages 1175-87, July.
    8. Theodore Groves & John O. Ledyard, 1976. "Some Limitations of Demand Revealing Processes," Discussion Papers 219, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Mailath, George J & Postlewaite, Andrew, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 351-67, July.
    10. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    11. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
    12. 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.
    13. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
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    Citations

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    Cited by:
    1. Lagunoff, Roger, 1997. "On the dynamic selection of mechanisms for provision of public projects," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1699-1725, August.
    2. Giovanni Maggi & Massimo Morelli, 2003. "Self Enforcing Voting in International Organizations," NBER Working Papers 10102, National Bureau of Economic Research, Inc.
    3. Pérez-Nievas, Mikel, . "Interim efficient allocation mechanisms," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7220, Universidad Carlos III de Madrid.
    4. R. J. Gary-Bobo & T. Jaaidane, 1996. "Polling mechanisms and the demand revelation problem," THEMA Working Papers 96-31, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    5. Gradstein, Mark, 1998. "Provision of public goods in a large economy," Economics Letters, Elsevier, vol. 61(2), pages 229-234, November.
    6. Daniel McFadden, 2009. "The human side of mechanism design: a tribute to Leo Hurwicz and Jean-Jacque Laffont," Review of Economic Design, Springer, vol. 13(1), pages 77-100, April.
    7. Martin Besfamille & Jean-Marie Lozachmeur, 2010. "NIMBY and mechanism design under different constitutional constraints," International Tax and Public Finance, Springer, vol. 17(2), pages 114-132, April.
    8. Pérez-Nievas, Mikel, . "Interim efficient mechanisms for a public decision making in a discrete framework," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7221, Universidad Carlos III de Madrid.
    9. Ledyard, John O. & Palfrey, Thomas R., 2002. "The approximation of efficient public good mechanisms by simple voting schemes," Journal of Public Economics, Elsevier, vol. 83(2), pages 153-171, February.
    10. Helmut Bester & Karl Wärneryd, 2006. "Conflict and the Social Contract," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 231-249, 07.
    11. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 589-614.
    12. Søberg, Morten & Tangerås, Thomas P., 2003. "Voter Turnout in Direct Democracy: Theory and Evidence," Working Paper Series 596, Research Institute of Industrial Economics.
    13. Ledyard, John O. & Palfrey, Thomas R., 2007. "A general characterization of interim efficient mechanisms for independent linear environments," Journal of Economic Theory, Elsevier, vol. 133(1), pages 441-466, March.

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