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A mechanism for the efficient provision of Potential Pareto public goods

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  • Ferraz, Eduardo
  • Mantilla, César

Abstract

Providing a public good that causes a local harm to its host poses two problems previously unexplored together: where to locate it and how large it should be. We propose a mechanism combining some market-like properties with a modified second-price auction. The mechanism selects a host, a facility size, a compensation for hosting the project, and determines how the compensation is split among the non-hosts. If each community bids truthfully for becoming the host–a strategy from which no community has incentives to deviate–the selected allocation is globally optimal, even if communities’ preferences are private information. In contrast with the literature, the host pays the second-highest bid while receiving the market benefits to prevent distortions in the optimal size.

Suggested Citation

  • Ferraz, Eduardo & Mantilla, César, 2023. "A mechanism for the efficient provision of Potential Pareto public goods," Journal of Public Economics, Elsevier, vol. 225(C).
    • Handle: RePEc:eee:pubeco:v:225:y:2023:i:c:s0047272723001354
    DOI: 10.1016/j.jpubeco.2023.104953
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    References listed on IDEAS

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    More about this item

    Keywords

    NIMBY; LULU; Lindahl outcomes; Public projects; Mechanism design;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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