Budget balance, fairness, and minimal manipulability

Abstract

A common real-life problem is to fairly allocate a number of indivisible objects and a fixed amount of money among a group of agents. Fairness requires that each agent weakly prefers his consumption bundle to any other agent's bundle. In this context, fairness is incompatible with budget balance and nonmanipulability (Green and Laffont 1979). Our approach here is to weaken or abandon nonmanipulability. We search for the rules that are minimally manipulable among all fair and budget-balanced rules. First, we show for a given preference profile, all fair and budget-balanced rules are either (all) manipulable or (all) nonmanipulable. Hence, measures based on counting profiles where a rule is manipulable or considering a possible inclusion of profiles where rules are manipulable do not distinguish fair and budget-balanced rules. Thus, a "finer" measure is needed. Our new concept compares two rules with respect to their degree of manipulability by counting for each profile the number of agents who can manipulate the rule. Second, we show that maximally preferred fair allocation rules are the minimally (individually and coalitionally) manipulable fair and budget-balanced allocation rules according to our new concept. Such rules choose allocations with the maximal number of agents for whom the utility is maximized among all fair and budget-balanced allocations. This is a revised version of CIREQ cahier 18-2010. In a paper subsequent to this, Fujinaka and Wakayama (2011) obtained similar results regarding individual manipulation (possibilities). We are grateful to two anonymous referees and to the co-editor Faruk Gul for their helpful comments and suggestions. We would like to thank seminar participants at

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