A mechanism for the efficient provision of Potential Pareto public goods

Eduardo Ferraz Castelo Branco Ferreira and César Mantilla

Journal of Public Economics, 2023, vol. 225, issue C

Abstract: Providing a public good that causes a local harm to its host poses two problems previously unexplored together: where to locate it and how large it should be. We propose a mechanism combining some market-like properties with a modified second-price auction. The mechanism selects a host, a facility size, a compensation for hosting the project, and determines how the compensation is split among the non-hosts. If each community bids truthfully for becoming the host–a strategy from which no community has incentives to deviate–the selected allocation is globally optimal, even if communities’ preferences are private information. In contrast with the literature, the host pays the second-highest bid while receiving the market benefits to prevent distortions in the optimal size.

Keywords: NIMBY; LULU; Lindahl outcomes; Public projects; Mechanism design (search for similar items in EconPapers)
JEL-codes: D61 H40 R53 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:225:y:2023:i:c:s0047272723001354

DOI: 10.1016/j.jpubeco.2023.104953

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