Some limitations of the groves-ledyard optimal mechanism

Joseph Greenberg, Robert Mackay and Nicolaus Tideman

Public Choice, 1977, vol. 29, issue 2, 129-137

Abstract: The tax rule suggested by Groves and Ledyard is certainly an ingenious one, although there is no indication as to how one might fall upon that specific scheme. If offers Pareto optimal allocations, and in particular, budget balance,if each individual behaves competitively and faces the equilibrium messages of all other individuals. However, we question the relevance of Nash equilibrium to the Free-Rider Problem. When the Groves-Ledyard Optimal Mechanism is interpreted dynamically, so that it becomes a conceivable solution to the Free-Rider Problem, it has limitations that the demand-revealing process does not always share. On the other hand, the demand-revealing process does not achieve budget balance, so that, in general, neither mechanism dominates the other. Each has its limitations, and an ideal mechanism, by the Hurwicz Impossibility Theorem, is nonexistent. Copyright Center for Study of Public Choice Virginia Polytechnic Institute and State University 1977

Date: 1977
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DOI: 10.1007/BF01718522

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