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The Demand Revealing Process: To Distribute the Surplus

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  • Bailey, Martin J

Abstract

Contrary to the established, frequently repeated proposition that its budget surplus cannot be distributed to taxpayers without disturbing the incentive compatibility of the demand-revealing process (DRP), the surplus can be distributed by reapplying the key concept of the DRP. There will remain an aggregate refund error that in a Bayesian sense is random with zero mean, and which vanishes O(1/N)-square as the economy becomes large through replication. To deal with income effects, when one does not restrict the domain of the mechanism to separable utility functions, the author suggests a variation of the DRP that preserves its incentive compatibility when N is finite. Copyright 1997 by Kluwer Academic Publishers

Suggested Citation

  • Bailey, Martin J, 1997. "The Demand Revealing Process: To Distribute the Surplus," Public Choice, Springer, vol. 91(2), pages 107-126, April.
    • Handle: RePEc:kap:pubcho:v:91:y:1997:i:2:p:107-26
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    Cited by:

    1. Efthymios Athanasiou & Santanu Dey & Giacomo Valleta, 2012. "On Sharing the Benefits of Communication," Working Papers 2012.41, Fondazione Eni Enrico Mattei.
    2. Toyotaka Sakai, 2017. "Considering Collective Choice: The Route 328 Problem in Kodaira City," The Japanese Economic Review, Japanese Economic Association, vol. 68(3), pages 323-332, September.
    3. Naroditskiy, Victor & Steinberg, Richard, 2015. "Maximizing social welfare in congestion games via redistribution," Games and Economic Behavior, Elsevier, vol. 93(C), pages 24-41.
    4. Sprumont, Yves, 2013. "Constrained-optimal strategy-proof assignment: Beyond the Groves mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 1102-1121.
    5. McKitrick, Ross & Collinge, Robert A., 2002. "The Existence and Uniqueness of Optimal Pollution Policy in the Presence of Victim Defense Measures," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 106-122, July.
    6. Efthymios Athanasiou & Giacomo Valletta, 2021. "Undominated mechanisms and the provision of a pure public good in two agent economies," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(4), pages 763-795, November.
    7. Pivato, Marcus, 2011. "A fair pivotal mechanism for nonpecuniary public goods," MPRA Paper 34525, University Library of Munich, Germany.
    8. de Clippel, Geoffroy & Naroditskiy, Victor & Polukarov, Maria & Greenwald, Amy & Jennings, Nicholas R., 2014. "Destroy to save," Games and Economic Behavior, Elsevier, vol. 86(C), pages 392-404.
      • Geoffroy de Clippel & Louis Putterman & Victor Naroditskiy & Maria Polukarov & Amy Greenwald & Nicholas R. Jennings, 2012. "Destroy to Save," Working Papers 2012-9, Brown University, Department of Economics.
    9. Nicolaus Tideman & Florenz Plassmann, 2017. "Efficient collective decision-making, marginal cost pricing, and quadratic voting," Public Choice, Springer, vol. 172(1), pages 45-73, July.
    10. Kazuhiko Hashimoto & Kohei Shiozawa, 2016. "Strategy-Proof Probabilistic Mechanisms for Public Decision with Money," ISER Discussion Paper 0964, Institute of Social and Economic Research, Osaka University.
    11. You, Jung S., 2015. "Optimal VCG mechanisms to assign multiple bads," Games and Economic Behavior, Elsevier, vol. 92(C), pages 166-190.
    12. Athanasiou, Efthymios, 2013. "A Solomonic solution to the problem of assigning a private indivisible good," Games and Economic Behavior, Elsevier, vol. 82(C), pages 369-387.
    13. Rickels, Wilfried & Quaas, Martin F. & Ricke, Katharine & Quaas, Johannes & Moreno-Cruz, Juan & Smulders, Sjak, 2020. "Who turns the global thermostat and by how much?," Energy Economics, Elsevier, vol. 91(C).
    14. Kazuhiko Hashimoto, 2015. "Strategy-Proof Rule in Probabilistic Allocation Problem of an Indivisible Good and Money," ISER Discussion Paper 0931, Institute of Social and Economic Research, Osaka University.
    15. Yan Long, 2020. "Optimal budget-balanced ranking mechanisms to assign identical objects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(2), pages 467-502, September.
    16. Sarkar, Soumendu, 2018. "Convergence of VCG mechanism to ex-post budget balance in a model of land acquisition," Mathematical Social Sciences, Elsevier, vol. 93(C), pages 37-46.
    17. Moulin, Hervé, 2009. "Almost budget-balanced VCG mechanisms to assign multiple objects," Journal of Economic Theory, Elsevier, vol. 144(1), pages 96-119, January.
    18. Guo, Mingyu & Conitzer, Vincent, 2009. "Worst-case optimal redistribution of VCG payments in multi-unit auctions," Games and Economic Behavior, Elsevier, vol. 67(1), pages 69-98, September.
    19. Zakharenko, Roman, 2021. "Optimal compulsion for private assembly of property," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    20. Efthymios Athanasiou & Santanu Dey & Giacomo Valletta, 2016. "Groves mechanisms and communication externalities," Review of Economic Design, Springer;Society for Economic Design, vol. 20(1), pages 1-37, March.
    21. Nath, Swaprava & Sandholm, Tuomas, 2019. "Efficiency and budget balance in general quasi-linear domains," Games and Economic Behavior, Elsevier, vol. 113(C), pages 673-693.
    22. Blumrosen, Liad & Solan, Eilon, 2023. "Selling spectrum in the presence of shared networks: The case of the Israeli 5G auction," Telecommunications Policy, Elsevier, vol. 47(2).
    23. Naroditskiy, Victor & Steinberg, Richard, 2015. "Maximizing social welfare in congestion games via redistribution," LSE Research Online Documents on Economics 62771, London School of Economics and Political Science, LSE Library.

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