Abstract
This paper considers the problem of designing 'well-behaved' mechanisms whose Nash allocations coincide with Lindahl allocations in the presence of decreasing returns to scale technologies. The mechanism presented here is individually feasible, balanced, continuous, and differentiable around Nash equilibria. Further, the mechanism has a message space of minimal dimension. Moreover, the authors show that, in contrast to mechanisms dealing with constant returns to scale, an important characteristic of mechanisms implementing the Lindahl correspondence with decreasing returns to scale technologies is that at least one individual's personalized prices depend on his own messages, provided the mechanisms are balanced and smooth. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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