On Incentive Compatible, Individually Rational Public Good Provision Mechanisms

Takashi Kunimoto, Cuiling Zhang   Published : March, 2021   JEL Code: C72, D78, D82   URL to this Article:  https://link.springer.com/article/10.1007/s00355-021-01329-8

Abstract

This paper characterizes mechanisms satisfying incentive compatibility and individual rationality in the classical public good provision problem. Many papers in the literature obtain the results in the so-called standard model of ex ante identical agents with a continuous, closed interval of types. The main contribution of this paper is the characterization of the budget-surplus maximizing mechanism satisfying incentive compatibility and individual rationality (Theorem 1 for Bayesian implementation and Theorem 3 for dominant strategy implementation) that applies to a finite discretization over the standard model. Making use of the proposed budget-surplus maximizing mechanisms, we show that some known results do not need the agents' risk neutrality, whereas some others do rely on the agents' risk neutrality in a subtle manner. Furthermore, we improve upon some known results and obtain new results which do not exist in the standard model.

Keywords

Budget balance; Decision efficiency; Incentive compatibility; Individual rationality; Mechanisms; Public goods