Strategy-proof allocation of fixed costs

An economy can produce and consume a fixed-cost excludable public good only if its members fully fund the cost of the good. In this paper, we characterize the entire class of mechanisms for the provision of the public good and its cost that are Pareto optimal among the set of strategy-proof, voluntarily-participatory, budget-balancing, non-bossy, and replacement-monotonic mechanisms. We demonstrate that this class of mechanisms is quite small and can be characterized as simple step-price mechanisms.Received: 10 July 2001, Accepted: 5 February 2003, JEL Classification: C72, D71This work was done while Dearden was visiting Center for Economic Research, Tilburg University, The Netherlands. He is thankful for their gracious hospitality. The authors thank the editors and reviewers for their thoughtful comments.