On Public Good Provision Mechanisms with Dominant Strategies and Balanced Budget
23 Pages Posted: 1 Mar 2016 Last revised: 25 Mar 2016
Date Written: March 1, 2016
Consider a mechanism for the binary public good provision problem that is dominant strategy incentive compatible (DSIC), ex-post individually rational (EPIR), and ex-post budget balanced (EPBB). It is well known that if there are only two agents then any such mechanism must have a threshold (or fixed cost-sharing) form, in which there is a fixed threshold for each of the two agents such that the public good is not provided if there is an agent with a value below her threshold and is provided if all agents' values exceed their respective threshold. When there are more than two agents, there are mechanisms that are DSIC, EPIR, and EPBB that are not of the threshold form. We show that, nevertheless, mechanisms that maximize welfare subject to DSIC, EPIR, and EPBB must again have the threshold form and thus differ from known second-best Bayesian mechanisms. In an effort to better understand why this is so, we show that mechanisms that are DSIC, EPIR, EPBB and not of the threshold form ignore the report of some agent(s). Our results apply more generally to binary social choice problems with transfers, so we do not require anonymity.
Keywords: Public good provision, asymmetric information, dominant strategy
JEL Classification: C72, D82, H41
Suggested Citation: Suggested Citation