The Demand Revealing Process: To Distribute the Surplus
Contrary to the established, frequently repeated proposition that its budget surplus cannot be distributed to taxpayers without disturbing the incentive compatibility of the demand-revealing process (DRP), the surplus can be distributed by reapplying the key concept of the DRP. There will remain an aggregate refund error that in a Bayesian sense is random with zero mean, and which vanishes O(1/N)-square as the economy becomes large through replication. To deal with income effects, when one does not restrict the domain of the mechanism to separable utility functions, the author suggests a variation of the DRP that preserves its incentive compatibility when N is finite. Copyright 1997 by Kluwer Academic Publishers
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