Economics Stack Exchange Archive

Auctions for public goods

• posted by: gsk3 on 2011-10-29
• tagged: game-theory, public-goods, auctions
• score: 1

One solution to public goods is governmental investment. There are auction models which also elicit the funds of those who benefit the most.

What are these auction models, and how do they compare to direct governmental investment on:

1. Efficiency of selecting which projects should be pursued (ensuring that all projects where societal benefit > societal cost are pursued), and
2. Efficiency of selecting which projects should not be pursued (avoiding investing in dead-end projects)

Answer 368

• posted by: CarrKnight on 2011-10-29
• score: 2

You want access to the whole literature on incentive-compatible mechanisms.

This problem was “solved” with the Vickrey–Clarke–Groves mechanism. In a nutshell it is an auction with player-to-player transfers in such a way that it causes truthful revealing of preferences.

The kicker is: it’s not budget balanced. There is going to be a social cost in knowing what the real private valuations are. I am afraid I don’t have references to give besides what you’ll find with a plain google search.

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