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No externalities: a characterization of efficiency and incentive compatibility with public goods

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  • Joseph Ostroy
  • Uzi Segal

Abstract

We show that efficient anonymous incentive compatible (dominant strategy) mechanisms for public goods eliminate externalities, i.e., each individual is unable to change the welfare of anyone else. The characterization is used to derive existence and non-existence results for models with a finite number of individuals and to explain existence results in the continuum. A similar characterization and conclusions are demonstrated for private goods in (J Econ Theory 85:169–225, 1999 ). However, unlike private goods, elimination of externalities with public goods implies that individuals cannot change the outcome. Hence, such mechanisms provide only weak incentives for truth-telling. Copyright Springer-Verlag 2012

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  • Joseph Ostroy & Uzi Segal, 2012. "No externalities: a characterization of efficiency and incentive compatibility with public goods," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(4), pages 697-719, October.
    • Handle: RePEc:spr:sochwe:v:39:y:2012:i:4:p:697-719
    DOI: 10.1007/s00355-011-0553-2
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    1. Makowski, Louis & Ostroy, Joseph M., 2013. "From revealed preference to preference revelation," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 71-81.

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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