Auction-Like Mechanisms for Pricing Excludable Public Goods

Abstract

We study the problem of strategy-proof mechanism design for indivisible and excludable public goods. Applying Vickrey's theory of auctions we associate a class of strategy-proof mechanisms to two types of procedures, the “English Auction-Like Mechanism” (EALM) and the “Sealed Bid Auction-Like Mechanism” (SBALM). We show that these two Auction-Like Mechanisms lead to identical outcomes. We justify the use of these mechanisms as compared to other strategy-proof mechanisms by arguing that outcomes of the SBALM maximize welfare. In the absence of capacity constraints the SBALM balances the budget and becomes Moulin's (Rev. Econ. Stud.61 (1994), 305–325) serial cost sharing rule and the conservative equal costs rule. If capacity constraints are binding, the SBALM does not necessarily balance the budget and becomes a generalized version of Vickrey's second price auction (see Kleindorfer and Sertel, J. Econ. Theory64 (1994), 20–34). Thus our results unify and provide justification for different procedures arising in two separate strands of the literature on mechanism design. Journal of Economic Literature classification numbers: H41, C72, D78.