Abstract
Many practical scenarios involve solving a social choice problem: a group of self-interested agents have to agree on an outcome that best fits their combined preferences. We assume that each outcome presents a certain utility to an agent and that the best outcome is the one that maximizes the sum of these utilities. We call a mechanism for solving social choice problems incentive-compatible if for each agent, the behavior that maximizes its own utility is also the one that maximizes the group’s utility.
One way to achieve incentive-compatibility is the Vickrey-Clarke-Groves (VCG) tax ([5]) mechanism. However, it produces a surplus of taxes that cannot be redistributed to the agents and can severely reduce agents’ utilities. Game theory has shown that it is not possible to have a general scheme that is incentive-compatible, budget-balanced and guarantees a Pareto-efficient solution.
We present a scheme that sacrifices Pareto-efficiency to achieve budget balance while being both incentive-compatible and individually rational. On randomly generated social choice problems, the scheme results in significantly better overall agent utility than the VCG tax mechanism.
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Faltings, B. (2006). A Budget-Balanced, Incentive-Compatible Scheme for Social Choice. In: Faratin, P., Rodríguez-Aguilar, J.A. (eds) Agent-Mediated Electronic Commerce VI. Theories for and Engineering of Distributed Mechanisms and Systems. AMEC 2004. Lecture Notes in Computer Science(), vol 3435. Springer, Berlin, Heidelberg. https://doi.org/10.1007/11575726_3
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DOI: https://doi.org/10.1007/11575726_3
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