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Voting and Lottery Drafts as Efficient Public Goods Mechanisms

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  • John O. Ledyard
  • Thomas R. Palfrey

Abstract

This paper characterizes interim efficient mechanisms for public good production and cost allocation in a two-type environment with risk neutral, quasi-linear preferences and fixed size projects, where the distribution of the private good, as well as the public goods decision, affects social welfare. An efficient public good decision can always be accomplished by a majority voting scheme, where the number of ``YES'' votes required depends on the welfare weights in a simple way. The results are shown to have a natural geometry and an intuitive interpretation. We also extend these results to allow for restrictions on feasible transfer rules, ranging from the traditional unlimited transfers to the extreme case of no transfers. For a range of welfare weights, an optimal scheme is a two-stage procedure which combines a voting stage with a second stage where an even-chance lottery is used to determine who pays. We call this the ``lottery draft mechanism''. Since such a cost-sharing scheme does not require transfers, it follows that in many cases transfers are not necessary to achieve the optimal allocation. For other ranges of welfare weights the second stage is more complicated, but the voting stage remains the same. If transfers are completely infeasible, randomized voting rules may be optimal. The paper also provides a geometric characterization of the effects of voluntary participation constraints. JEL Classification: 024, 026

Suggested Citation

  • John O. Ledyard & Thomas R. Palfrey, 1994. "Voting and Lottery Drafts as Efficient Public Goods Mechanisms," Game Theory and Information 9405003, EconWPA, revised 22 May 1994.
  • Handle: RePEc:wpa:wuwpga:9405003
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    References listed on IDEAS

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    1. repec:eee:gamebe:v:104:y:2017:i:c:p:468-485 is not listed on IDEAS
    2. Ledyard, John O. & Palfrey, Thomas R., 2007. "A general characterization of interim efficient mechanisms for independent linear environments," Journal of Economic Theory, Elsevier, vol. 133(1), pages 441-466, March.
    3. Giebe, Thomas & Schweinzer, Paul, 2014. "Consuming your way to efficiency: Public goods provision through non-distortionary tax lotteries," European Journal of Political Economy, Elsevier, vol. 36(C), pages 1-12.
    4. Gary-Bobo, Robert J. & Jaaidane, Touria, 2000. "Polling mechanisms and the demand revelation problem," Journal of Public Economics, Elsevier, vol. 76(2), pages 203-238, May.
    5. Richard P. McLean & Andrew Postlewaite, 2015. "Informational size and two-stage mechanisms," PIER Working Paper Archive 15-011, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Martin Besfamille & Jean-Marie Lozachmeur, 2010. "NIMBY and mechanism design under different constitutional constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 17(2), pages 114-132, April.
    7. Helmut Bester & Karl Wärneryd, 2006. "Conflict and the Social Contract," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(2), pages 231-249, July.
    8. Chen, Roy & Chen, Yan & Liu, Yang & Mei, Qiaozhu, 2017. "Does team competition increase pro-social lending? Evidence from online microfinance," Games and Economic Behavior, Elsevier, vol. 101(C), pages 311-333.
    9. Nabil I. Al-Najjar & Chris Forman, 1999. "Reciprocity and the Costs of Authority Relationships," Discussion Papers 1281, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Pérez-Nievas, Mikel, 2000. "Interim efficient allocation mechanisms," UC3M Working papers. Economics 7220, Universidad Carlos III de Madrid. Departamento de Economía.
    11. Kopányi-Peuker, Anita & Offerman, Theo & Sloof, Randolph, 2017. "Fostering cooperation through the enhancement of own vulnerability," Games and Economic Behavior, Elsevier, vol. 101(C), pages 273-290.
    12. Kwiek, Maksymilian, 2017. "Efficient voting with penalties," Games and Economic Behavior, Elsevier, vol. 104(C), pages 468-485.
    13. Søberg, Morten & Tangerås, Thomas P., 2003. "Voter Turnout in Direct Democracy: Theory and Evidence," Working Paper Series 596, Research Institute of Industrial Economics.
    14. Lagunoff, Roger, 1997. "On the dynamic selection of mechanisms for provision of public projects," Journal of Economic Dynamics and Control, Elsevier, vol. 21(10), pages 1699-1725, August.
    15. Giovanni Maggi & Massimo Morelli, 2006. "Self-Enforcing Voting in International Organizations," American Economic Review, American Economic Association, vol. 96(4), pages 1137-1158, September.
    16. Peter Norman, 2004. "Efficient Mechanisms for Public Goods with Use Exclusions," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1163-1188.
    17. Lien, Jaimie W. & Zheng, Jie & Zhong, Xiaohan, 2017. "Ex-ante fairness in the Boston and serial dictatorship mechanisms under pre-exam and post-exam preference submission," Games and Economic Behavior, Elsevier, vol. 101(C), pages 98-120.
    18. Ledyard, John O. & Palfrey, Thomas R., 2002. "The approximation of efficient public good mechanisms by simple voting schemes," Journal of Public Economics, Elsevier, vol. 83(2), pages 153-171, February.
    19. Gradstein, Mark, 1998. "Provision of public goods in a large economy," Economics Letters, Elsevier, vol. 61(2), pages 229-234, November.
    20. Drew Fudenberg & David K. Levine & Eric Maskin, 1996. "Balanced-Budget Mechanisms with Incomplete Information," Levine's Working Paper Archive 59, David K. Levine.
    21. Daniel McFadden, 2009. "The human side of mechanism design: a tribute to Leo Hurwicz and Jean-Jacque Laffont," Review of Economic Design, Springer;Society for Economic Design, vol. 13(1), pages 77-100, April.
    22. McLean, Richard P. & Postlewaite, Andrew, 2017. "A dynamic non-direct implementation mechanism for interdependent value problems," Games and Economic Behavior, Elsevier, vol. 101(C), pages 34-48.
    23. Martin F. Hellwig, 2003. "Public-Good Provision with Many Participants," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 589-614.
    24. repec:kap:pubcho:v:172:y:2017:i:1:d:10.1007_s11127-017-0405-4 is not listed on IDEAS

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    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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