The Minimum Approval Mechanism Implements the Efficient Public Good Allocation Theoretically and Experimentally

Takehito Masuda, Yoshitaka Okano and Tatsuyoshi Saijo

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: We propose the minimum approval mechanism (MAM) for a standard linear public good environment with two players. Players simultaneously and privately choose their contributions to the public good in the first stage. In the second stage, they simultaneously decide whether to approve the other's choice. Both contribute what they choose in the first stage if both players approve; otherwise, both contribute the minimum of the two choices in the first stage. The MAM implements the Pareto-efficient allocation in backward elimination of weakly dominated strategies (BEWDS) and is unique under plausible conditions. Contributions in the MAM experiment overall averaged 94.9%. The data support BEWDS rather than subgame perfect Nash equilibria. Quantifying subjects' responses to the questionnaire showed that the majority of subjects in the MAM found a heuristic or an algorithm named diagonalization and supported the notions of minimax regret and iterated best response, all of which mimic BEWDS outcomes.

Date: 2013-05
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-pub
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:0874

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