Announcement or Contribution? The Relative Efficiency of Manipulated Lindahl Mechanisms

Paper number: 08/12

Paper date: October 28, 2008

Year: 2008

Paper Category: Working Paper

Authors

Nigar Hashimzade and Gareth D. Myles

Abstract

The private provision mechanism is individually incentive compatible but inefficient. The Lindahl mechanism is efficient but not incentive compatible. We analyze the outcome of the manipulated Lindahl mechanism. When the demand announcements of participants are unrestricted the Lindahl mechanism suffers from multiple equilibria. If the government removes the multiplicity by restricting the functional form of announcements the resulting Lindahl equilibrium can be made approximately efficient. Approximate efficiency is achieved by announcements that are one-dimensional regardless of the number of participants in the mechanism. This is in contrast to mechanisms that achieve exact efficiency but require announcements whose dimensionality increases at the same rate as the number of participants. The mechanism we describe benefits from simplicity at the cost of approximate efficiency. We demonstrate that mechanisms in which a linear demand function is announced are supermodular so play will converge to the Nash equilibrium for a range of learning dynamics.

Announcement or Contribution? The Relative Efficiency of Manipulated Lindahl Mechanisms Announcement or Contribution? The Relative Efficiency of Manipulated Lindahl Mechanisms