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No Externalities: A Characterization of Efficiency and Incentive Compatibility with Public Goods

  • Joseph M. Ostroy


  • Uzi Segal


    (Boston College)

We show that efficient anonymous incentive compatible (dominant strategy) mechanisms for public goods eliminate externalities, i.e., each individual is unable to change the welfare of anyone else. The characterization is used to derive existence and non-existence results for models with a finite number of individuals and to explain existence results in the continuum. A similar characterization and conclusions are demonstrated for private goods in [7]. However, unlike private goods, elimination of externalities with public goods implies that individuals cannot change the outcome. Hence, such mechanisms provide only weak incentives for truth-telling.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 769.

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Date of creation: 22 Sep 2010
Date of revision:
Handle: RePEc:boc:bocoec:769
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  1. Shigehiro Serizawa, 1999. "Strategy-Proof and Symmetric Social Choice Functions for Public Good Economies," Econometrica, Econometric Society, vol. 67(1), pages 121-146, January.
  2. Schummer, James, 2000. "Manipulation through Bribes," Journal of Economic Theory, Elsevier, vol. 91(2), pages 180-198, April.
  3. Groves, Theodore & Loeb, Martin, 1975. "Incentives and public inputs," Journal of Public Economics, Elsevier, vol. 4(3), pages 211-226, August.
  4. Hammond, Peter J, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Wiley Blackwell, vol. 46(2), pages 263-82, April.
  5. Walker, Mark, 1980. "On the Nonexistence of a Dominant Strategy Mechanism for Making Optimal Public Decisions," Econometrica, Econometric Society, vol. 48(6), pages 1521-40, September.
  6. Rob, Rafael, 1982. "Asymptotic efficiency of the demand revealing mechanism," Journal of Economic Theory, Elsevier, vol. 28(2), pages 207-220, December.
  7. Makowski, Louis & Ostroy, Joseph M., 1992. "Vickrey-Clarke-Groves mechanisms in continuum economies : Characterization and existence," Journal of Mathematical Economics, Elsevier, vol. 21(1), pages 1-35.
  8. H. Moulin, 1980. "On strategy-proofness and single peakedness," Public Choice, Springer, vol. 35(4), pages 437-455, January.
  9. Eric Maskin, 1998. "Nash Equilibrium and Welfare Optimality," Harvard Institute of Economic Research Working Papers 1829, Harvard - Institute of Economic Research.
  10. Makowski, Louis & Ostroy, Joseph M. & Segal, Uzi, 1999. "Efficient Incentive Compatible Economies Are Perfectly Competitive," Journal of Economic Theory, Elsevier, vol. 85(2), pages 169-225, April.
  11. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  12. Philippe Jehiel & Moritz Meyer-ter-Vehn & Benny Moldovanu & William R. Zame, 2005. "The Limits of Ex-Post Implementation," Levine's Bibliography 666156000000000548, UCLA Department of Economics.
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