An almost Ideal Solution to the Siting Problem of Publicly Provided Indivisible Goods

Abstract

To address the siting problem of publicly provided indivisible goods, numerous compensation mechanisms have been suggested in the literature, which are implementable in the Bayesian sense. However, careful attention has rarely been paid to the class of dominant strategy implementable mechanisms. This paper suggests a dominant strategy implementation mechanism titled the “almost ideal mechanism (AIM).” The AIM has many desirable properties such as incentive compatibility, individual rationality, efficiency, and dominant strategy implementation. Even though it violates the budget balance condition, the magnitude of the budget imbalance becomes negligible as the number of the participants increases. The performance of the AIM is compared to the performance of four alternative mechanisms with laboratory experiments based on three criteria. The experimental results reveal that the dominant strategy mechanism, AIM, outperforms the other mechanisms.