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Optimal mechanism design for the private supply of a public good

Gergely Csapó and Rudolf Müller

Games and Economic Behavior, 2013, vol. 80, issue C, 229-242

Abstract: We study the problem of finding the profit-maximizing mechanism for a monopolistic provider of a single, non-excludable public good. Our model covers the most general setting, namely, we allow for correlation in the signal distribution as well as for informational externalities in the valuations. We show that the optimal deterministic, ex-post incentive compatible, ex-post individual rational mechanism can be computed in polynomial time by reducing the problem to finding a maximal weight closure in a directed graph. Node weights in the graph correspond to conditional virtual values, while the network structure is arising from the monotonicity constraints. We discuss what can be achieved if we relax our core assumptions one by one, i.e., if we go for randomized, interim individual rational or Bayes–Nash implementable mechanisms. Finally, we demonstrate that our techniques can be adapted for the excludable public good problem as well.

Keywords: Public good provision; Mechanism design; Profit maximization (search for similar items in EconPapers)
JEL-codes: C61 C72 D82 H41 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Optimal mechanism design for the private supply of a public good (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:80:y:2013:i:c:p:229-242

DOI: 10.1016/j.geb.2013.03.014

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