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Participation constraints of matching mechanisms

Weifeng Liu

Journal of Public Economic Theory, 2019, vol. 21, issue 3, 488-511

Abstract: Matching mechanisms have been proposed to improve public good provision in voluntary contributions. However, such decentralized subsidizing mechanisms may not be Pareto‐improving and may suffer from incomplete information and incredible commitment. This paper examines participation constraints of matching mechanisms with small matching rates in two cases of equilibria. At interior equilibria, there always exist small Pareto‐improving matching schemes regardless of preferences. This universal existence is useful for cooperation among heterogeneous players in the context without global information of preferences or at the international level without central governments. At corner equilibria, matching schemes work in different ways and have distinct welfare effects in certain cases, and the existence of Pareto‐improving matching schemes is not universal but is possible under certain conditions. The paper further characterizes Pareto‐improving matching schemes, and shows that it is easier to reach Pareto‐improving matching outcomes if players value more on public goods and have stronger substitution between private and public goods.

Date: 2019
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