REVELATION MECHANISMS AND ALLOCATIVE EFFICIENCY

Florenz Plassmann and Nicolaus Tideman

Economic Inquiry, 2019, vol. 57, issue 4, 2147-2162

Abstract: We show that revelation mechanisms affect owners' valuations of the assets they own and that different mechanisms provide owners with the incentive to reveal—truthfully—different valuations. Self‐assessment of property with compulsory sale at the self‐assessed price is the only known mechanism that promotes allocative efficiency by providing efficient incentives for transferring property to those who value it most. We introduce two modifications of the standard self‐assessment mechanism that maintain full incentives to invest and raise as much public revenue as can be raised efficiently. (JEL D61, D82, H21, K11)

Date: 2019
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