Government and the provision of public goods : from equilibrium models to mechanism design

Focusing on their analysis of the optimal public goods provision problem, this paper follows the parallel development of equilibrium models and mechanism design after the accomodation of Samuelson's definition of collective goods to the general equilibrium framework. Both paradigms lead to the negative conclusion of the impossibility of a fully decentralized optimal public goods provision through market or market-like institutions.Lindahl-Foley equilibrium, Wicksell-Foley equilibrium, private provision equilibrium, free-rider problem, mechanism design, incentive compatibility, principal-agent models.

Government and the provision of public goods: from equilibrium models to mechanism design

Focussing on their analysis of the optimal public goods provision problems, this paper follows the parallel development of equilibrium models and mechanism design after the accommodation of Samuelson's definition of collective goods to the general equilibrium framework. Both paradigms lead to the negative conclusion of the impossibility of a fully decentralized optimal public goods provision throught market or market-like institutions.general equilibrium, Lindahl-Foley equilibrium, Wicksell-Foley public competitive equilibrium, private provision equilibrium, mechanism design, free-rider problem, incentive compatibility, principal-agent models

From equilibrium models to mechanism design: On the place and the role of government in the public goods provision analysis in the second part of the twentieth century

Focussing on their analysis of the optimal public goods provision problem, this paper follows the parallel development of equilibrium models and mechanism design after the accommodation of Samuelson's definition of collective goods to the general equilibrium framework. Both paradigms lead to the negative conclusion of the impossibility of a fully decentralized optimal public goods provision through market or market-like institutions.General equilibrium, Lindahl-Foley equilibrium, Wicksell public competitive equilibrium, private provision equilibrium, mechanism design, free-rider problem, incentive compatibility.

A Characterization of Optimal Feasible Tax Mechanism

This paper is motivated by a practical income (or wealth) taxation problem: For a public good economy where the provision of public goods is to be financed by income taxes collected from individuals, what is the optimal feasible tax mechanism when a social planner is relatively uninformed of the incomes or endowments of the individuals? This kind of problem, the optimal private provision of public goods, is a typical Bayesian mechanism design question for a small economy such as a club. In this case, the social planner has to take into account not only the individuals' incentive to report their income truthfully, but also the (individual) feasibility of the designed tax mechanism in the sense that each individual's tax payment should be consistent with their ability to pay. We employ the feasible implementation model used in Hurwicz, Maskin, and Postlewaite [1995] to study such an optimal taxation problem. It has been assumed in the standard model of optimal labor income taxation literature, pioneered by Mirrlees [1971], that there is a continuum of individuals and the (labor) income is observable to avoid the feasibility problem. Also, the literature on private provision of public goods has paid little attention to the continuous provision of public goods and the constrained efficiency under incomplete information. This paper considers a finite economy where public goods are provided continuously. Using a simple Bayesian model, we provide the full characterization of the two-agent, two-type optimal feasible tax mechanism and its properties. We find that (i) when the total endowment of the economy is relatively low enough or high enough, the first best feasible taxation can be obtained; (ii) the second best feasible tax mechanism requires a poor agent to pay relatively more than a rich agent, that is, it is regressive; and (iii) the tax mechanism is increasing in the sense that the agent's tax payment increases with his endowment. We also provide a comparative statics analysis. For the case of more than two agents, under certain mild assumptions we give some partial results similar to (i) and (ii) above. In addition, we find the optimal feasible tax mechanism for the corresponding infinitely large economyoptimal taxation, feasibility, informational rent, second best

Strategy-proof allocation mechanisms for economies with public goods

This paper provides a characterization of the class of incentive compatible (i.e., strategy-proof) allocation mechanisms for decision problems associated with classical economic environments. It is shown that when at least one public good is provided, then only dictatorial allocation mechanisms are incentive compatible. Dictatorial mechanisms are very unsatisfactory, as any conflict of interest is always resolved in favor of a single individual (the dictator). This result reveals a basic incompatibility between incentive compatibility and any other desirable property (e.g., any kind of efficiency, fairness, etc.) of an allocation mechanism. In particular, incentive compatible allocation mechanisms typically produce inefficient outcomes

The Effect of Communicating Ambiguous Risk Information on Choice

Decision makers are frequently confronted with ambiguous risk information about activities with potential hazards. This may be a result of conflicting risk estimates from multiple sources or ambiguous risk information from a single source. The paper considers processing ambiguous risk information and its effect on the behavior of a decision maker with a-maximin expected utility preferences. The effect of imprecise risk information on behavior is related to the content of information, the decision maker’s trust in different sources of information, and his or her aversion to ambiguity.a-Maximin Expected Utility, aggregation of expert opinions, ambiguity, Knightian uncertainty, risk communication, trust in information source, Risk and Uncertainty,

Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson: Mechanism Design Theory

Scientific Background, The Nobel Prize in Economic Sciences 2007. Economic transactions take place in markets, within firms and under a host of other institutional arrangements. Some markets are free of government intervention while others are regulated. Within firms, some transactions are guided by market prices, some are negotiated, and yet others are dictated by management. Mechanism design theory provides a coherent framework for analyzing this great variety of institutions, or "allocation mechanisms", with a focus on the problems associated with incentives and private information.Mechanism Design; Asymmetric Information

Dominant Strategies Implementation when Compensations are Allowed:a Characterization Fundación

Dominant strategies truthful implementation of flexible social objectives involves the ability of the planner to alter the individual incentives in such a way that the externality imposed on society by each agent reporting a given type is fully internalized in the agent’s final payoff. In other words, the agents’ objective function must mimic the social objectives. We find that our main result is robust enough to explain why well-known mechanisms like Groves’s transfers work in some contexts while some other social objectives are not implementable in dominant strategies.Individual decisiveness, compensation mechanisms, dominant strategies.