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

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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.

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Authors and Affiliations

  1. Department of Economics, UCLA, Los Angeles, CA, USA

    Joseph M. Ostroy

  2. Department of Economics, Boston College, Chestnut Hill, MA, USA

    Uzi Segal

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  1. Joseph M. Ostroy
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  2. Uzi Segal
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Correspondence to Uzi Segal.

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Ostroy, J.M., Segal, U. No externalities: a characterization of efficiency and incentive compatibility with public goods. Soc Choice Welf 39, 697–719 (2012). https://doi.org/10.1007/s00355-011-0553-2

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  • DOI: https://doi.org/10.1007/s00355-011-0553-2

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