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Published October 24, 2017 | Submitted
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The Existence of Efficient and Incentive Compatible Equilibria with Public Goods

Abstract

In our previous paper, "Optimal Allocation of Public Goods...," (1977) we presented a mechanism for determining efficient public goods allocations when preferences are unknown and consumers are free to misrepresent their demands for public goods. We proved the basic welfare theorem for this model: If consumers are competitive in markets for private goods and follow Nash behavior in their choice of demands to report to the mechanism, then equilibria will be Pareto optimal. In this paper we show this result is not vacuous by proving that an equilibria will be Pareto optimal. In this paper we show this result is not vacuous by proving that an equilibrium will exist for a wide class of economies. Our conditions are slightly stronger than those required to prove the existence of a Lindahl equilibrium. In order to rule out the possibility of bankruptcy, we assume additionally that at all Pareto optimal allocations, private goods consumption is bounded away from zero.

Additional Information

This work was supported in part by National Science Foundation Grant SOC77-06000 at the Institute for Mathematical Studies in the Social Sciences, Stanford University, in part by NSF Grant SOC76-20953 at the Center for Mathematical Studies in Economics and Management Science, Northwestern University, and a Fairchild Foundation Grant at the California Institute of Technology. This paper is a revision of one referenced as "[16]" in our earlier paper (referenced herein as Groves and Ledyard [1977]). Published as Groves, Theodore, and John O. Ledyard. "The existence of efficient and incentive compatible equilibria with public goods." Econometrica: Journal of the Econometric Society (1980): 1487-1506.

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August 19, 2023
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