Priorities in the location of multiple public facilities

A collective decision problem is described by a set of agents, a profile of single-peaked preferences over the real line and a number of public facilities to be located. We consider public facilities that do not suffer from congestion and are non-excludable. We characterize the class of rules satisfying Pareto-efficiency, object-population monotonicity and sovereignty. Each rule in the class is a priority rule that selects locations according to a predetermined priority ordering among “interest groups”. We characterize the subclasses of priority rules that respectively satisfy anonymity, avoid the no-show paradox, strategy-proofness and population-monotonicity. In particular, we prove that a priority rule is strategy-proof if and only if it partitions the set of agents into a fixed hierarchy. Any such rule can also be viewed as a collection of generalized peak-selection median rules, that are linked across populations, in a way that we describe.     

Unintended Effects of Targeting an Environmental Rebate

When designing schemes such as conditional cash transfers or payments for ecosystem services, the choice of whom to select and whom to exclude is critical. We incentivize and measure actual contributions to an environmental public good to ascertain whether being excluded from a rebate can affect contributions and, if so, whether the rationale for exclusion influences such effects. Treatments, i.e., three rules that determine who is selected and excluded, are randomly assigned. Two of the rules base exclusion on subjects’ initial contributions. The third is based upon location and the rationales are always explained. The rule that targets the rebate to low initial contributors, who have more potential to raise contributions, is the only rule that raised contributions by those selected. Yet by design, that same rule excludes the subjects who contributed the most initially. They respond by reducing their contributions even though their income and prices are unchanged.     

Theoretical incentive properties of contingent valuation questions: Do they matter in the field?

Green et al. (1998) [Green, D., Jacowitz, K.E., Kahneman, D., McFadden, D., 1998. Referendum contigent valuation, anchoring, and willingness to pay for public goods. Resource and Energy Economics 20 (2), 85−116] show theoretically that stated preference questions about public services can be framed in such ways that if the subjects accept the frame the payoff­maximizing behavior will be to answer truthfully. One key element of such a theoretically incentive­compatible framing is that the (hypothetical) decision rule specified in the survey instrument is understood to be a majority rule rather than the efficiency rule typically used in cost­benefit analysis. We conducted field experiments in Germany and Switzerland to test if a referendum framing as suggested by Green et al. is effective in reducing strategic misrepresentation in a contingent valuation setting. We did not find the expected effects of the framing treatments on stated willingness to pay or on individuals' (stated) beliefs about the social choice context. The results do not support hopes that a theoretically incentive compatible framing could be purposefully used to invoke the specific beliefs about the linkage between responses and policy implementation that would make stated preference questions incentive compatible.     

Public-private partnerships in micro-finance: Should NGO involvement be restricted?

This paper examines public–private partnerships in micro-finance, whereby NGOs can help in channelizing credit to the poor, both in borrower selection, as well as in project implementation. We argue that a distortion may arise out of the fact that the private partner, i.e. the NGO, is a motivated agent. We find that whenever the project is neither too productive, nor too unproductive, reducing such distortion requires unbundling borrower selection and project implementation, with the NGO being involved in borrower selection only. Further, we compare and contrast two alternative credit delivery mechanisms, the linkage mechanism (which is the focus of this paper), with the ‘Grameen’ one.     

Externalities and fundamental nonconvexities: A reconciliation of approaches to general equilibrium externality modeling and implications for decentralization

Starrett (1972) [33] and Boyd and Conley (1997) [7] approaches to externality modeling are unified by distinguishing between producible and nonproducible public commodities. Nonconvexities are associated with detrimental producible public commodities but not with nonproducible public commodities in Boyd and Conley (1997) [7]. Disposability properties (costly or costless) imply that producible public commodities are either by-products (e.g., pollution) or joint-products (e.g., national defense). Markets fail for both beneficial and detrimental by-products. Nonconvexities imply that price-based equilibria, e.g., Pigovian tax equilibrium, may not be Pareto-efficient. Foley's (1967, 1970) [17] and [18] “public competitive equilibrium” combines price and quantity signals with a unanimity criterion and restores the equivalence between equilibrium and efficiency.     

STRATEGY‐PROOF ALLOCATION OF INDIVISIBLE GOODS AMONG COUPLES

We consider the problem of allocating indivisible goods among couples. Agents in a couple share the indivisible good assigned to them. The main result is that an allocation rule is strategy‐proof, neutral and non‐bossy if and only if it is serially dictatorial. An allocation rule is serially dictatorial if there is a priority order of couples and a function that identifies who chooses in each couple, such that for all preference profiles, a good assigned to couple i is the best element according to the preference of the identified agent in couple i among the remaining goods when the couples with higher priorities have made their choice.     

Help not needed? Optimal host country regulation of expatriate NGO workers

Motivated by interventions in poor countries to increase the use of local labor in foreign nongovernmental organizations (NGOs), we address the behavior of these organizations under host government regulation. We extend existing NGO models by distinguishing between local workers and expatriates. The model covers both NGO monopoly and competition in the market for donations. Assuming that NGOs maximize output, we show that regulations in the form of a quota on the number of expatriates or a work permit fee for foreigners reduces NGO output, but increases employment of locals. The optimal quota is more likely to bind in the market structure generating the highest total fundraising surplus. An optimal work permit fee is equivalent to an optimal quota in both the monopoly and duopoly cases. For both instruments, the optimal tightness of regulation is decreasing in the weight the government attaches to the public good relative to domestic incomes and in the importance of NGO output to the supply of the public good. Aggregate NGO output and the level of the public good produced could be higher with a monopoly NGO.     

Bargaining one-dimensional social choices

We analyze bargaining over the one-dimension characteristic of a public good among n impatient players when decisions require q favorable votes, q?2. Stationary subgame perfect equilibrium strategies are characterized for all games with deterministic protocol. We provide a monotonicity condition (satisfied by all single-peak, strictly quasi-concave and concave utilities) that assures uniqueness for every q whenever player's utilities are symmetric around the peak. Without symmetry, the monotonicity condition assures uniqueness for qualified majorities, q>n/2, provided that agents are sufficiently patient and utilities satisfy an additional regularity condition. Asymptotic uniqueness is assured for qualified majorities by imposing only the monotonicity condition.     

Hope springs eternal: learning and the stability of cooperation in short horizon repeated games

This paper considers learning rates in finitely repeated prisoners’ dilemmas. If players think their opponents might be relatively cooperative (e.g., tit-for-tat or grim types), they will cooperate in finitely repeated prisoners’ dilemmas (see Kreps et al., J. Econom. Theory 27 (1982) 245). However, if there are actually no cooperative types, players will eventually learn this and cooperation will break down. This paper shows that this learning is extremely slow, so it will take an extremely long time for cooperation to break down.Thus, suppose the world is either “good” or “bad.” The probability of a grim type is δ>0 if the world is good, and zero if the world is bad. Successive generations pair up to play finitely repeated prisoners’ dilemmas. Players observe play in previous generations and use Bayes’ rule to update their prior, π, that the world is good. We show that, if the world is really bad, then π falls per generation on average. Thus, if δ is small, there is less cooperation if the world is good, but cooperation may become more stable. For a representative 19 period repeated prisoners’ dilemma, beliefs fall one percentage point on average after a thousand generations.To derive these learning rates, we must refine existing results on the sensitivity of repeated games to Kreps et al. (1982) type perturbations. Specifically, we show cooperation is possible in perturbed prisoners’ dilemmas repeated O(log(1/δ)) times. This improves significantly on the O(1/δ) results in previous work. The paper thus provides two new reasons why cooperation tends to be stable, even in short horizon repeated games.     

The communication requirements of social choice rules and supporting budget sets

The paper examines the communication requirements of social choice rules when the (sincere) agents privately know their preferences. It shows that for a large class of choice rules, any minimally informative way to verify that a given alternative is in the choice rule is by verifying a “budget equilibrium”, i.e., that the alternative is optimal to each agent within a “budget set” given to him. Therefore, any communication mechanism realizing the choice rule must find a supporting budget equilibrium. We characterize the class of choice rules that have this property. Furthermore, for any rule from the class, we characterize the minimally informative messages (budget equilibria) verifying it. This characterization is used to identify the amount of communication needed to realize a choice rule, measured with the number of transmitted bits or real variables. Applications include efficiency in convex economies, exact or approximate surplus maximization in combinatorial auctions, the core in indivisible-good economies, and stable many-to-one matchings.     

Dynamic stability and reform of political institutions

This paper examines endogenous institutional change in a class of dynamic political games. The political aggregation rules used at date t+1 are instrumental choices under rules at date t. Effectively, rules are “players” who can strategically delegate future policy-making authority to different rules. A political rule is stable if it selects itself. A reform occurs when an alternative rule is selected. The stability of a political rule is shown to depend on whether its choices are dynamically consistent. For instance, simple majority rules can be shown to be dynamically consistent in many common environments where wealth-weighted voting rules are not. The result extends to political rules that incorporate private activities such as extra-legal protests, threats, or private investment. The approach is one way of understanding various explanations of institutional change proposed in the literature. A parametric model of public goods provision gives an illustration.     

Human agency and convergence: Gaus’s Kantian Parliamentarian

Public reason is justified to the extent that it uses (only) arguments, assumptions, or goals that are allowable as “public” reasons. But this exclusion requires some prior agreement on domains, and a process that disallows new unacceptable reasons by unanimous consent. Surprisingly, this problem of reconciliation is nearly the same, mutatis mutandis, as that faced by micro-economists working on general equilibrium, where a conceit—tâtonnement, directed by an auctioneer—was proposed by Leon Walras. Gaus’s justification of public reason requires the “as if” solution of a Kantian Parliamentarian, who rules on whether a proposal is “in order.” Previous work on public reason, by Rousseau, Kant, and Rawls, have all reduced decision-making and the process of “reasoning” to choice by a unitary actor, thereby begging the questions of disagreement, social choice, and reconciliation. Gaus, to his credit, solves that problem, but at the price of requiring that the process “knows” information that is in fact indiscernible to any of the participants. In fact, given the dispersed and radical situatedness of human aims and information, it is difficult for individuals, much less groups, to determine when norms are publicly justified or not. More work is required to fully take on Hayek’s insight that no person, much less all people, can have sufficient reasons to endorse the relevant norm, rule or law.     

Does resorting to online dispute resolution promote agreements? Experimental evidence

This paper presents an experiment performed to test the properties of an innovative bargaining mechanism (called automated negotiation) used to resolve disputes arising from Internet-based transactions. The main result shows that the settlement rule tends to chill bargaining as it creates incentives for individuals to misrepresent their true valuations, which implies that automated negotiation is not able to promote agreements. However, this perverse effect depends strongly on the conflict situation. When the threat that a disagreement occurs is more credible, the strategic effect is reduced since defendants are more interested in maximizing the efficiency of a settlement than their own expected profit. The implications of these results are then used to discuss the potential role of public regulation and reputation mechanisms in Cyberspace.     

An Afriat Theorem for the collective model of household consumption

We provide a nonparametric ‘revealed preference’ characterization of rational household behavior in terms of the collective consumption model, while accounting for general individual preferences that can be non-convex. Our main result is the Collective Afriat Theorem, which parallels the well-known Afriat Theorem for the unitary model. First, it provides a characterization of collectively rational consumption behavior in terms of collective Afriat inequalities. Next, it implies the Collective Axiom of Revealed Preference (CARP) as a testable necessary and sufficient condition for data consistency with collective rationality. Finally, the theorem has some interesting testability implications. With only a finite set of observations, the nature of consumption externalities (positive or negative) in the intra-household allocation process is non-testable. The same non-testability conclusion holds for privateness (with or without externalities) or publicness of consumption. By contrast, concavity of individual utility functions (representing convex preferences) turns out to be testable. In addition, monotonicity is testable for the model that assumes all household consumption is public.     

Rebate rules in threshold public good provision

This paper considers how six alternative rebate rules affect voluntary contributions in a threshold public-good experiment. The rules differ by (1) whether an individual can receive a proportional rebate of excess contributions, a winner-takes-all of any excess contributions, or a full rebate of one's contribution in the event the public good is provided and excess contributions exist, and (2) whether the probability of receiving a rebate is proportional to an individual's contribution relative to total contributions or is a simple uniform probability distribution set by the number of contributors. The paper adds to the existing experimental economics literature on threshold public goods by investigating both aggregate and individual demand revelation under the winner-take-all and random full-rebate rules. Half of the rules (proportional rebate, winner-take-all with uniform probability among all group members, and random full-rebate with uniform probability) provide total contributions that nearly equal total benefits, while the rest (winner-take-all with proportional probability, winner-take-all with uniform probability among contributors only, and random full-rebate with proportional probability) exceed benefits by over 30%. Only the proportional rebate rule is found to achieve both aggregate and individual demand revelation. Our experimental results have implications for both fundraisers and valuation practitioners.     

The value of information in a principal-agent model with moral hazard: The ex post contracting case

In a principal-agent model with moral hazard, a signal about the principal?s technology — the stochastic mapping from the agent?s action to the outcome — is observed before the contract is offered. The signal is either uninformative (null information), informative and observed only by the principal (private information), or also observed by the agent (public information). We show that, from an ex ante standpoint (before the signal is observed): (i) the agent prefers private to both null and public information; (ii) the principal sometimes prefers null to both private and public information; and (iii) when the principal prefers public to null information, she prefers public to private information, whereas the agent prefers private to public information. In this last situation, we also show that (iv) for any separating equilibrium with private information, there exists a contract with public information that both strictly prefer.     

Efficiency and consistency for locating multiple public facilities

In the problem of locating multiple public facilities studied by Barberà and Beviá [Self-selection consistent functions, J. Econ. Theory 105 (2002) 263-277; Locating public facilities by majority: stability, consistency and group formation, Games Econ. Behav. 56 (2006) 185-200], we offer simple necessary and sufficient conditions for efficiency, decentralizability of efficient decisions in a game of community division and local public goods provision, and a constructive algorithm for efficient and consistent decisions.     

Social Conflict and Gradual Political Succession: An Illustrative Model*

This paper studies the evolution of political institutions in the face of conflict. We examine institutional reform in a class of pivotal mechanisms—institutions that behave as if the resulting policy were determined by a “pivotal” decision maker drawn from the potential population of citizens and who holds full policy‐making authority at the time. A rule‐of‐succession describes the process by which pivotal decision makers in period t + 1 are, themselves, chosen by pivotal decision makers in period t. Two sources of conflict—class conflict, arising from differences in wealth, and ideological conflict, arising from differences in preferences—are examined. In each case, we characterize the unique Markov‐perfect equilibrium of the associated dynamic political game, and show that public decision‐making authority evolves monotonically downward in wealth and upward in ideological predisposition toward the public good. We then examine rules‐of‐succession when ideology and wealth exhibit correlation.     

Accountability and fiscal equalization

A common feature of multi-jurisdictional systems is equalization programs. The implementation of such programs, that is based on some measurement of sub-national fiscal capacity and effort, is particularly complex. Within a political economy model, this paper analyzes the impact of such systems on accountability, identifying a positive and a negative effect. The positive effect arises because with equalized fiscal resources, a consequence of equalization, citizens attach more importance to any remaining variation in public good supplies and so punish rent-taking more severely. This induces politicians to restrain themselves and so accountability improves. The negative effect arises because the complexity of such programs reduces the informational content of observed public good supplies. This introduces a perverse fiscal incentive that reduces accountability. Thus, the overall impact of equalization programs on accountability depends on the balance of these effects.     

On the evolution of conditional cooperation

A long series of laboratory and field experiments, as well as conventional empirical studies, has established that (1) individuals voluntarily provide themselves with public goods at levels exceeding those predicted by the Nash voluntary contributions mechanism, and (2) agents reciprocate increases in the contributions of their counterparts in such settings (conditional cooperation). This paper presents a simple model of the evolution of preferences for conditional cooperation in the presence of a public good, which explains these two empirical findings without employing reputational or group selection arguments. In this model, individuals inherit preferences to match other agents' contributions to the provision of a public good, at some specified “matching rate.” Agents whose preferences induce them to be relatively successful – in material terms – increase in number, from one generation to the next. Under complete information and with randomly matched groups of N agents who have quasilinear preferences over the public good and a private good, the unique evolutionarily stable matching rate is 1, leading to Pareto optimal voluntary provision of the public good, regardless of group size N. The evolutionarily stable matching rate can be viewed as an endogenous social norm.