Efficient Bayesian Mechanisms for Collective Goods: Is a Deficit Inevitable?

This paper considers efficient Bayesian mechanisms for the provision of collective goods. We study the impact of excludability and the nature of externalities exhibited by collective goods upon incentives. We demonstrate that if a good is rivalrous only excludability of benefits allows a designer to restrict each agent's payoff enough to achieve efficiency in the limit. The more exclusive a rivalrous good, the smaller is the financial deficit in the mechanism relative to the size of the surplus of the economic activity. In contrast, if a good exhibits positive externalities, excludability is no longer necessary to achieve efficiency in provision. Copyright 2001 by Blackwell Publishing Inc.