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Discrete implementation of the Groves–Ledyard mechanism

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  • J. Swarthout
  • Mark Walker

Abstract

When implementing an economic institution in the field or in the laboratory, the participants' action spaces and the institution's outcomes are typically discrete, while our theoretical analysis of the institution often assumes the sets are continuous. Predictions by the continuous model generally turn out to be good approximations to the performance of the discrete implementation. We present an example in which the continuous version has a unique and Pareto efficient equilibrium, but in which the discrete version often has vastly more equilibria, many of them far from efficient. We show that the same phenomenon appears in two experiments investigating the Groves-Ledyard mechanism, and that it may account for the experimental results.
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Suggested Citation

  • 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.
    • Handle: RePEc:spr:reecde:v:13:y:2009:i:1:p:101-114
    DOI: 10.1007/s10058-008-0066-3
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    References listed on IDEAS

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    1. Groves, Theodore & Ledyard, John O, 1977. "Optimal Allocation of Public Goods: A Solution to the "Free Rider" Problem," Econometrica, Econometric Society, vol. 45(4), pages 783-809, May.
    2. 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.
    3. 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.
    4. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
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    Cited by:

    1. 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.
    2. Otsubo, Hironori & Rapoport, Amnon, 2008. "Vickrey's model of traffic congestion discretized," Transportation Research Part B: Methodological, Elsevier, vol. 42(10), pages 873-889, December.

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    More about this item

    Keywords

    Groves–Ledyard mechanism; Public goods; Implementation in discrete strategies; Multiple equilibria; Dominant strategies; C72; C90; D61; H41;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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