Publication: Strategy-proof allocation mechanisms for economies with public goods
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1994-06
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Abstract
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.