The demand revealing process: To distribute the surplus

Abstract

Contrary to established, frequently repeated proposition that its budget surplus cannot be distributed to taxpayers without disturbing the incentive compatibility of the demand revealing process (DRP), the surplus can be distributed by reapplying the key concept of the DRP. There will remain an aggregate refund error that in a Bayesian sense is random with zero mean, and which vanishes O(1/N)² as the economy becomes large through replication. To dela with income effects. when one does not restrict the domain of the mechanism to separable utility functions, I suggest a variation of the DRP that preserves its incentive compatibility wgeb N is finite.