IDEAS home Printed from https://ideas.repec.org/a/eee/jetheo/v182y2019icp218-246.html
   My bibliography  Save this article

Public goods with ambiguity in large economies

Author

Listed:
  • Kocherlakota, Narayana R.
  • Song, Yangwei

Abstract

We consider a canonical problem in economics: the financing and provision of a public good. Mailath and Postlewaite (1990) show that under natural information and enforcement frictions, the probability of providing the public good falls to zero as the population size goes to infinity even if provision of the public good is efficient. In this paper, we allow agents to have multiple prior beliefs about others' valuations and to make choices that reflect their aversion to that ambiguity. We show that, as long as each agent's set of priors contains some distribution of valuations under which provision is inefficient, it is possible to find a mechanism in large economies that finances provision of the public good.

Suggested Citation

  • Kocherlakota, Narayana R. & Song, Yangwei, 2019. "Public goods with ambiguity in large economies," Journal of Economic Theory, Elsevier, vol. 182(C), pages 218-246.
    • Handle: RePEc:eee:jetheo:v:182:y:2019:i:c:p:218-246
    DOI: 10.1016/j.jet.2019.04.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022053118305374
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jet.2019.04.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wilfredo Leiva Maldonado & Jose A. Rodrigues-Neto, 2016. "Beliefs and Public Good Provision with Anonymous Contributors," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(5), pages 691-708, October.
    2. repec:oup:restud:v:84:y::i:1:p:237-276. is not listed on IDEAS
    3. Song, Yangwei, 2018. "Efficient Implementation with Interdependent Valuations and Maxmin Agents," Rationality and Competition Discussion Paper Series 92, CRC TRR 190 Rationality and Competition.
    4. , & , & ,, 2006. "Optimal auctions with ambiguity," Theoretical Economics, Econometric Society, vol. 1(4), pages 411-438, December.
    5. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
    6. Bose, Subir & Daripa, Arup, 2009. "A dynamic mechanism and surplus extraction under ambiguity," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2084-2114, September.
    7. Subir Bose & Ludovic Renou, 2014. "Mechanism Design With Ambiguous Communication Devices," Econometrica, Econometric Society, vol. 82, pages 1853-1872, September.
    8. Ralph W. Bailey & Jürgen Eichberger & David Kelsey, 2005. "Ambiguity and Public Good Provision in Large Societies," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 741-759, December.
    9. ,, 2011. "Dynamic choice under ambiguity," Theoretical Economics, Econometric Society, vol. 6(3), September.
    10. Bodoh-Creed, Aaron L., 2012. "Ambiguous beliefs and mechanism design," Games and Economic Behavior, Elsevier, vol. 75(2), pages 518-537.
    11. De Castro, Luciano & Yannelis, Nicholas C., 2018. "Uncertainty, efficiency and incentive compatibility: Ambiguity solves the conflict between efficiency and incentive compatibility," Journal of Economic Theory, Elsevier, vol. 177(C), pages 678-707.
    12. George J. Mailath & Andrew Postlewaite, 1990. "Asymmetric Information Bargaining Problems with Many Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 351-367.
    13. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    14. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
    15. Gabriel Carroll, 2017. "Robustness and Separation in Multidimensional Screening," Econometrica, Econometric Society, vol. 85, pages 453-488, March.
    16. Alfredo di Tillio & Nenad Kos & Matthias Messner, 2017. "The Design of Ambiguous Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 237-276.
    17. Eichberger, Jurgen & Kelsey, David, 2002. "Strategic Complements, Substitutes, and Ambiguity: The Implications for Public Goods," Journal of Economic Theory, Elsevier, vol. 106(2), pages 436-466, October.
    18. Cesaltina Pacheco Pires, 2002. "A Rule For Updating Ambiguous Beliefs," Theory and Decision, Springer, vol. 53(2), pages 137-152, September.
    19. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    20. Kin Chung Lo, 1998. "Sealed bid auctions with uncertainty averse bidders," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(1), pages 1-20.
    21. Song, Yangwei, 2018. "Efficient implementation with interdependent valuations and maxmin agents," Journal of Economic Theory, Elsevier, vol. 176(C), pages 693-726.
    22. Wolitzky, Alexander, 2016. "Mechanism design with maxmin agents: theory and an application to bilateral trade," Theoretical Economics, Econometric Society, vol. 11(3), September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Yunan & Zhang, Xingtan, 2024. "Collective decision through an informed mediator," Journal of Economic Theory, Elsevier, vol. 218(C).
    2. Song, Yangwei, 2023. "Approximate Bayesian implementation and exact maxmin implementation: An equivalence," Games and Economic Behavior, Elsevier, vol. 139(C), pages 56-87.
    3. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    4. Berliant, Marcus & Gouveia, Miguel, 2022. "On the Political Economy of Nonlinear Income Taxation," MPRA Paper 113140, University Library of Munich, Germany.
    5. Guo, Huiyi, 2024. "Collusion-proof mechanisms for full surplus extraction," Games and Economic Behavior, Elsevier, vol. 145(C), pages 263-284.
    6. Song, Yangwei, 2022. "Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence," Rationality and Competition Discussion Paper Series 362, CRC TRR 190 Rationality and Competition.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Song, Yangwei, 2022. "Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence," Rationality and Competition Discussion Paper Series 362, CRC TRR 190 Rationality and Competition.
    2. Takashi Ui, 2023. "Strategic Ambiguity in Global Games," Papers 2303.12263, arXiv.org, revised Nov 2024.
    3. Song, Yangwei, 2023. "Approximate Bayesian implementation and exact maxmin implementation: An equivalence," Games and Economic Behavior, Elsevier, vol. 139(C), pages 56-87.
    4. Tang, Rui & Zhang, Mu, 2021. "Maxmin implementation," Journal of Economic Theory, Elsevier, vol. 194(C).
    5. Guo, Huiyi, 2019. "Mechanism design with ambiguous transfers: An analysis in finite dimensional naive type spaces," Journal of Economic Theory, Elsevier, vol. 183(C), pages 76-105.
    6. Auster, Sarah & Kellner, Christian, 2022. "Robust bidding and revenue in descending price auctions," Journal of Economic Theory, Elsevier, vol. 199(C).
    7. Takashi Ui, 2021. "Strategic Ambiguity in Global Games," Working Papers on Central Bank Communication 032, University of Tokyo, Graduate School of Economics.
    8. Evren, Özgür, 2019. "Recursive non-expected utility: Connecting ambiguity attitudes to risk preferences and the level of ambiguity," Games and Economic Behavior, Elsevier, vol. 114(C), pages 285-307.
    9. Grant, Simon & Stauber, Ronald, 2022. "Delegation and ambiguity in correlated equilibrium," Games and Economic Behavior, Elsevier, vol. 132(C), pages 487-509.
    10. Guo, Huiyi, 2024. "Collusion-proof mechanisms for full surplus extraction," Games and Economic Behavior, Elsevier, vol. 145(C), pages 263-284.
    11. Song, Yangwei, 2018. "Efficient Implementation with Interdependent Valuations and Maxmin Agents," Rationality and Competition Discussion Paper Series 92, CRC TRR 190 Rationality and Competition.
    12. Ellis, Andrew, 2018. "On dynamic consistency in ambiguous games," Games and Economic Behavior, Elsevier, vol. 111(C), pages 241-249.
    13. Song, Yangwei, 2018. "Efficient implementation with interdependent valuations and maxmin agents," Journal of Economic Theory, Elsevier, vol. 176(C), pages 693-726.
    14. Beauchêne, Dorian & Li, Jian & Li, Ming, 2019. "Ambiguous persuasion," Journal of Economic Theory, Elsevier, vol. 179(C), pages 312-365.
    15. De Castro, Luciano & Yannelis, Nicholas C., 2018. "Uncertainty, efficiency and incentive compatibility: Ambiguity solves the conflict between efficiency and incentive compatibility," Journal of Economic Theory, Elsevier, vol. 177(C), pages 678-707.
    16. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    17. Lopomo, Giuseppe & Rigotti, Luca & Shannon, Chris, 2022. "Uncertainty and robustness of surplus extraction," Journal of Economic Theory, Elsevier, vol. 199(C).
    18. Bhattacharya, Vivek & Manuelli, Lucas & Straub, Ludwig, 2018. "Imperfect public monitoring with a fear of signal distortion," Journal of Economic Theory, Elsevier, vol. 175(C), pages 1-37.
    19. Subir Bose & Suresh Mutuswami, 2012. "Bilateral Bargaining in an Ambiguous Environment," Discussion Papers in Economics 12/10, Division of Economics, School of Business, University of Leicester.
    20. Ju Hu & Xi Weng, 2021. "Robust persuasion of a privately informed receiver," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(3), pages 909-953, October.

    More about this item

    Keywords

    Efficient provision; Public goods; Ambiguity aversion; Large economies;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:182:y:2019:i:c:p:218-246. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622869 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.