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Out-of-equilibrium performance of three Lindahl mechanisms: Experimental evidence

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  • Van Essen, Matthew
  • Lazzati, Natalia
  • Walker, Mark

Abstract

We describe an experimental comparison of the out-of-equilibrium performance of three allocation mechanisms designed to achieve Lindahl outcomes as Nash equilibria: the mechanisms due to Walker (1981), Kim (1993), and Chen (2002). We find that Chenʼs mechanism, which is supermodular, converges closest and most rapidly to its equilibrium. However, we find that the properties that move subjects toward equilibrium in Chenʼs mechanism typically generate sizeable taxes and subsidies when not in equilibrium, and correspondingly large budget surpluses and deficits, which typically far outweigh the surplus created by providing the public good. The Kim mechanism, on the other hand, converges relatively close to its equilibrium and exhibits much better out-of-equilibrium efficiency properties.

Suggested Citation

  • Van Essen, Matthew & Lazzati, Natalia & Walker, Mark, 2012. "Out-of-equilibrium performance of three Lindahl mechanisms: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 74(1), pages 366-381.
    • Handle: RePEc:eee:gamebe:v:74:y:2012:i:1:p:366-381
    DOI: 10.1016/j.geb.2011.04.005
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    References listed on IDEAS

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    1. L. Hurwicz, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(2), pages 217-225.
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    8. Chen, Yan & Plott, Charles R., 1996. "The Groves-Ledyard mechanism: An experimental study of institutional design," Journal of Public Economics, Elsevier, vol. 59(3), pages 335-364, March.
    9. J. Swarthout & Mark Walker, 2009. "Discrete implementation of the Groves–Ledyard mechanism," Review of Economic Design, Springer;Society for Economic Design, vol. 13(1), pages 101-114, April.
    10. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    11. Kim, Taesung, 1993. "A stable Nash mechanism implementing Lindahl allocations for quasi-linear environments," Journal of Mathematical Economics, Elsevier, vol. 22(4), pages 359-371.
    12. Yan Chen & Fang-Fang Tang, 1998. "Learning and Incentive-Compatible Mechanisms for Public Goods Provision: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 633-662, June.
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    Citations

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    Cited by:

    1. Matt Van Essen, 2015. "Bartering Games in the Kolm Triangle," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 297-310, June.
    2. Matt Van Essen, 2012. "A note on the stability of Chen’s Lindahl mechanism," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(2), pages 365-370, February.
    3. Federica Alberti & César Mantilla, 2024. "A mechanism requesting prices and quantities may increase the provision of heterogeneous public goods," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 244-270, March.
    4. Alberti, Federica & Mantilla, César, 2020. "Provision of noxious facilities using a market-like mechanism: A simple implementation in the lab," Working papers 35, Red Investigadores de Economía.
    5. Van Essen, Matthew & Walker, Mark, 2017. "A simple market-like allocation mechanism for public goods," Games and Economic Behavior, Elsevier, vol. 101(C), pages 6-19.
    6. , J. & ,, 2012. "Designing stable mechanisms for economic environments," Theoretical Economics, Econometric Society, vol. 7(3), September.
    7. Caleb Cox & Arzé Karam & Matthias Pelster, 2022. "Two-Period Duopolies with Forward Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 29-62, February.
    8. Matt Van Essen, 2012. "Information complexity, punishment, and stability in two Nash efficient Lindahl mechanisms," Review of Economic Design, Springer;Society for Economic Design, vol. 16(1), pages 15-40, March.
    9. Matt Essen, 2014. "A Clarke tax tâtonnement that converges to the Lindahl allocation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 43(2), pages 309-327, August.

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    More about this item

    Keywords

    Public goods; Mechanism design; Lindahl;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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