On incentive compatible, individually rational public good provision mechanisms

Abstract

This paper characterizes mechanisms satisfying incentive compatibility and individual rationality in the classical public good provision problem. Many papers in the literature obtain the results in the so-called standard model of ex ante identical agents with a continuous, closed interval of types. The main contribution of this paper is the characterization of the budget-surplus maximizing mechanism satisfying incentive compatibility and individual rationality (Theorem 1 for Bayesian implementation and Theorem 3 for dominant strategy implementation) that applies to a finite discretization over the standard model. Making use of the proposed budget-surplus maximizing mechanisms, we show that some known results do not need the agents’ risk neutrality, whereas some others do rely on the agents’ risk neutrality in a subtle manner. Furthermore, we improve upon some known results and obtain new results which do not exist in the standard model.