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

Author

Listed:
  • Joseph M. Ostroy

    (UCLA)

  • Uzi Segal

    () (Boston College)

Abstract

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.

Suggested Citation

  • Joseph M. Ostroy & Uzi Segal, 2010. "No Externalities: A Characterization of Efficiency and Incentive Compatibility with Public Goods," Boston College Working Papers in Economics 769, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:769
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    References listed on IDEAS

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    1. Groves, Theodore & Loeb, Martin, 1975. "Incentives and public inputs," Journal of Public Economics, Elsevier, vol. 4(3), pages 211-226, August.
    2. Rob, Rafael, 1982. "Asymptotic efficiency of the demand revealing mechanism," Journal of Economic Theory, Elsevier, vol. 28(2), pages 207-220, December.
    3. 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.
    4. Walker, Mark, 1980. "On the Nonexistence of a Dominant Strategy Mechanism for Making Optimal Public Decisions," Econometrica, Econometric Society, vol. 48(6), pages 1521-1540, September.
    5. Philippe Jehiel & Moritz Meyer-ter-Vehn & Benny Moldovanu & William R. Zame, 2006. "The Limits of ex post Implementation," Econometrica, Econometric Society, vol. 74(3), pages 585-610, May.
    6. Schummer, James, 2000. "Manipulation through Bribes," Journal of Economic Theory, Elsevier, vol. 91(2), pages 180-198, April.
    7. 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.
    8. Shigehiro Serizawa, 1999. "Strategy-Proof and Symmetric Social Choice Functions for Public Good Economies," Econometrica, Econometric Society, vol. 67(1), pages 121-146, January.
    9. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    10. H. Moulin, 1980. "On strategy-proofness and single peakedness," Public Choice, Springer, vol. 35(4), pages 437-455, January.
    11. Peter J. Hammond, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 263-282.
    12. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
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    Cited by:

    1. Makowski, Louis & Ostroy, Joseph M., 2013. "From revealed preference to preference revelation," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 71-81.

    More about this item

    Keywords

    Public goods; private goods; no externalities; incentive compatibility; duality;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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