Abstract
A classic result in the theory of incentive compatibility is Hurwicz (Decision and organization: a volume in honor of Jacob Marschak, 1972). The paper showed that strategy-proof (SP), Pareto-efficient and individually rationalsocial choice functions do not exist in two-good, two-agent exchange economies. This result has been extended in several ways, for instance, to arbitrary numbers of agents and goods and to restricted domains. In this paper, we extend the result to economies with production. We consider a two-good economy with a single public good that can be produced from a private good according to a convex cost function. Agents have initial endowments of the private good. We show that SP, Pareto-efficient, individually-rational and continuous social choice functions do not exist in this environment. Pareto-efficiency, individual rationality and continuity axioms apply only to a “small” domain of preferences parametrized by a real number.
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