Club good mechanisms: from free-riders to citizen-shareholders, from impossibility to characterization

Andrew Mackenzie, Christian Trudeau

Research output: Working paperProfessional

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Abstract

Consider a community that shares a technology for producing a club good (Buchanan, 1965): any group of agents can “win” for an associated monetary cost. Who should win, and how should production be funded? To address this question, we seek rules (that is, direct mechanisms) where each agent participates voluntarily and is incentivized to report his valuation honestly, and where these reports are used to select winners efficiently without running a deficit.
We find that whether or not there are such rules depends on the production technology. If costs are even “somewhat concave,” then there are no such rules: the free-rider problem (Wicksell, 1896; Samuelson, 1954; Green and Laffont, 1979) persists even when agents who do not contribute can be excluded. If costs are symmetric and convex, however, then there are such rules that moreover satisfy no-envy-in-trades (Kolm, 1971; Schmeidler and Vind, 1972). We characterize this class, whose Pareto-worst member is the familiar minimum-price Walrasian rule (Vickrey, 1961; Clarke, 1971; Groves, 1973; Demange, 1982; Leonard, 1983); the other rules do better by treating the agents as equal shareholders in the technology and offering social dividends (Lange, 1936).
Original languageEnglish
PublisherMaastricht University, Graduate School of Business and Economics
Publication statusPublished - 8 May 2018

Publication series

SeriesGSBE Research Memoranda
Number012

JEL classifications

  • d82 - "Asymmetric and Private Information; Mechanism Design"
  • d61 - "Allocative Efficiency; Cost-Benefit Analysis"
  • h41 - Public Goods
  • d44 - Auctions

Keywords

  • Economics
  • Mathematical economics
  • Microeconomics

Cite this

Mackenzie, A., & Trudeau, C. (2018). Club good mechanisms: from free-riders to citizen-shareholders, from impossibility to characterization. Maastricht University, Graduate School of Business and Economics. GSBE Research Memoranda, No. 012