Endogenous community formation and collective provision: A procedurally fair mechanism

A group of actors, individuals or firms, can engage in collectively providing projects which may be costly or generating revenues and which may benefit some and harm others. Based on requirements of procedural fairness (Güth and Kliemt, 2013), we derive a bidding mechanism determining endogenously who participates in collective provision, which projects are implemented, and the positive or negative payments due to the participating members. We justify and discuss this procedural fairness approach and compare it with that of optimal, e.g. welfaristic game theoretic mechanism design (e.g. Myerson, 1979).