Incentive compatibility and individual rationality in public good economies (Q1181233): Difference between revisions

A mechanism is incentive compatible (IC) if truthful revelation of preferences is a dominant strategy for all agents. In his seminal paper on informational decentralization \textit{L. Hurwicz} [in: Decision Organization, Vol. in Honor of Jacob Marschak, Stud. math. managerial Economics 12, 297-336 (1972; Zbl 0254.90009)] has shown that there does not exist any IC mechanism that attains Pareto optimality (PO) and individual rationality (IR) in pure exchange economies with private goods. The result has been extended by \textit{L. Hurwicz} and \textit{M. Walker} [Econometrica 58, No. 3, 683-704 (1990; Zbl 0728.90027)] who demonstrate that generically there are no IC and PO mechanisms in a class of both private and public goods economies. The present paper therefore explores consistency of IC and IR. For this purpose the notion of IR is extended in a natural way in order to cope with production possibilities. The resulting notion is called autarkic individual rationality (AIR). For economies with private goods only, mechanisms exist which are both IC and AIR. However, IC and AIR are inconsistent requierements if the economy contains public goods. This is the paper's main proposition.