Chapter 10 Incentives and the allocation of public goods

The completely decentralized allocation mechanisms, such as the subscription equilibrium, fail in general to achieve satisfactory allocations. More cooperation among economic agents is needed. Many forms of cooperation are used, many more are conceivable: the voting mechanisms of various kinds and the planning procedures of various kinds. The theory of social choice provides a firm basis for a rigorous approach to the study of the choice made by society among these mechanisms. Social choice often has a dynamic dimensionthat is, public decisions are made step by step. This non-ttonnement interpretation of dynamic collective decision processes leads to a natural weakening of incentives requirements, which is to assume myopic behavior. A short review of various ways to weaken the notion of dominant strategy implementation is presented in the chapter. If moral considerations can be relied upon for a positive attitude toward becoming an informed citizen, it will be important to be able to use social decision mechanisms that, if they offer to agents only a weak incentive to be truthful, at least do not give any incentive to misrepresent their information.