Efficient provision of public goods with endogenous redistribution
We study a continuous and balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The Government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation it wants to implement. The mechanism then guarantees that initial endowments are re-allocated so that the chosen vector of Lindahl prices is indeed a Lindahl equilibrium, and implements the corresponding Lindahl allocation. Previously known mechanisms that implement the Lindahl correspondence do not allow the Government to choose which point on the Pareto frontier should be implemented, unless it can also redistribute initial endowments in the appropriate way. By contrast, in our case the Government directly controls the distribution of welfare in the economy. Finally, besides being balanced and continuous, our mechanism is `simple'. Each agent has to declare a desired increase in the amount of public good, and a vector of redistributive transfers of initial endowments (across other agents).
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- Groves, Theodore & Ledyard, John O., 1978.
"The Existence of Efficient and Incentive Compatible Equilibria with Public Goods,"
203, California Institute of Technology, Division of the Humanities and Social Sciences.
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Econometric Society, vol. 45(4), pages 783-809, May.
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- Guoqiang Tian, 1989. "Implementation of the Lindahl Correspondence by a Single-Valued, Feasible, and Continuous Mechanism," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 613-621.
- Andrew Postlewaite & David Wettstein, 1989. "Feasible and Continuous Implementation," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 603-611.
- Tian, Guoqiang, 1988. "On the constrained Walrasian and Lindahl correspondences," Economics Letters, Elsevier, vol. 26(4), pages 299-303.
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