Participation Constraints of Matching Mechanisms

40 Pages Posted: 16 Oct 2014 Last revised: 25 Mar 2019

See all articles by Weifeng Liu

Weifeng Liu

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: October 1, 2014

Abstract

Matching mechanisms have been proposed to improve public good provision in voluntary contributions. However, such decentralized subsidizing mechanisms may not be Pareto-improving and may suffer from incomplete information and incredible commitment. This paper examines participation constraints of matching mechanisms, and investigates the existence condition of Pareto-improving outcomes of small matching schemes, and characterizes the condition of desirable matching schemes. Income distributions across players play an important role. If the income distribution ensures an interior equilibrium, there always exist small Pareto-improving matching schemes regardless of preferences. This universal existence is useful for cooperation among heterogeneous players in the context without global information of preferences or at the international level without central governments. However, if the income inequality induces a corner equilibrium, matching schemes work in different ways and have different welfare effects in certain cases, and the existence of Pareto-improving matching schemes is not universal but is possible under a certain condition. In particular, if the corner player unilaterally matches the interior player, both players can be better off, indicating that unilateral action through matching can possibly generate Pareto-improving outcomes.

Keywords: Public goods, Matching mechanisms, Participation constraints

JEL Classification: C78, H41

Suggested Citation

Liu, Weifeng, Participation Constraints of Matching Mechanisms (October 1, 2014). CAMA Working Paper No. 63/2014, Available at SSRN: https://ssrn.com/abstract=2510173 or http://dx.doi.org/10.2139/ssrn.2510173

Weifeng Liu (Contact Author)

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Crawford School of Public Policy
Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://cama.crawford.anu.edu.au/

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