A solution to the problem of consumption externalities

A Unique Informationally Efficient Allocation Mechanism In Economies With Consumption Externalities*

“…Like the Lindahl mechanism, the distributive Lindahl mechanism has the so‐called “free‐rider” problem, and thus it is not incentive compatible, and thus one needs to propose an incentive mechanism that implements the distributive Lindahl allocations with a solution concept of self‐interested behavior. Recently, Tian (2003) amended the definition of the distributive Lindahl equilibrium by allowing free disposal and considered the implementation problem of distributive Lindahl allocations in Nash and strong Nash equilibria when preferences, individual endowments, and coalition patterns among individuals are unknown to the planner. The mechanism constructed in Tian (2003) is a market‐type mechanism that implements the constrained distributive Lindahl allocations in Nash and strong Nash equilibria.…”

“…Recently, Tian (2003) amended the definition of the distributive Lindahl equilibrium by allowing free disposal and considered the implementation problem of distributive Lindahl allocations in Nash and strong Nash equilibria when preferences, individual endowments, and coalition patterns among individuals are unknown to the planner. The mechanism constructed in Tian (2003) is a market‐type mechanism that implements the constrained distributive Lindahl allocations in Nash and strong Nash equilibria. Although this mechanism implements interior distributive Lindahl allocations, the size of the message space of the mechanism is much larger than that of the distributive Lindahl mechanism, and thus it is not informationally efficient.…”

Implementation of Pareto efficient allocations

“…The most commonly used equilibrium principles that result in Pareto optimal allocations are the Walrasian equilibrium, proportional equilibrium and Lindahl distributive equilibrium solutions for private goods economies, Lindahl equilibrium, ratio equilibrium and cost share equilibrium solutions for public goods economies. Many specific mechanisms have been provided in the literature that implement theseequilibrium principles such as those in Hurwicz (1979); Schmeidler (1980); Hurwicz et al (1995); Postlewaite and Wettstein (1989); Tian (1989Tian ( , 1994Tian ( , 1996Tian ( , 2003; Hong (1995); Peleg (1996a, b); Suh (1995Suh ( , 1997; Yoshihara (1999); Duggan (2003) among others. The implementation literature rarely discusses implementation of the whole set of Pareto efficient allocations under private ownership or more generally under other ownership structures.…”

Announcement or Contribution? The Relative Efficiency of Manipulated Lindahl Mechanisms

“…Bergstrom (1970) described the distributive Lindahl mechanism in which each participant announces a set of cost shares (for each good, for each participant) and prices are adjusted to achieve an equilibrium which is necessarily efficient. Recently this mechanism has been generalized by Tian (2003) to ensure that it is safe from the formation of coalitions. Varian (1994) proposed a compensation mechanism that decentralizes efficient equilibria.…”