Incentive Compatible Experimental Processes for the Provision of Public Goods

Abstract

After providing… [public expenditure] … theory with its… optimal conditions, I went on to demonstrate the fatal inability of any decentralized market or voting mechanism to attain or compute this optimum [Samuelson, (1955), p. 35]. … to say that market mechanisms are non-optimal, and that there are difficulties with most political decision processes, does not imply that we can never find new mechanisms of a better sort [Samuelson (1958), p. 334]. Providing the [public] expenditure in question holds out any prospect at all of creating utility exceeding costs, it will always be theoretically possible, and approximately so in practice, to find a distribution of costs such that all parties regard the expenditure as beneficial and may therefore approve it unanimously [Wicksell (1896), pp. 89-90]. How much of this [the principle of unanimity and voluntary consent in taxation] … may be of practical use in the near future, men of affairs may decide [Wicksell (1896), p. 73]. INTRODUCTION The theory of public goods has, in the space of 20 years, revolutionized teaching and research in public finance, had a major impact on the content of microeconomic theory in general, and has provided, for many, the analytical foundation for an economic justification for the state. The most widely accepted proposition in contemporary public finance is the “fatal inability” of decentralized market or voting institutions to attain a Pareto-optimal allocation of resources when there are public goods.

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