Clarke groves mechanism public policy

1. CLARKE GROVES
MECHANISM

2. CLARKE GROVES MECHANISM
• Truthful mechanism for achieving a socially-optimal
solution.
• Consist of choice rule and payment rule
• Determine preferences for Public Goods.
• It has truth as dominant strategy as impact on others
preferences is always a dominant strategy
• Makes efficient choices
• Incentive in terms of society

3. EXAMPLE
• Consider two roommates who would like to buy a
TV for their apartment. TV costs $100 They
should decide:
• Do they want to buy a TV together?
• If so, how should they share the costs?
• Individual preferences have to be taken into
consideration in deciding the efficient outcome.

4. EXAMPLE
• Bidders are willing to pay v1 and v2 this is private
information. Efficient outcome: buy if v1 + v2 > 100 VCG
ensures: Efficient outcome. Truthful revelation. What are
the VCG payments? Consider values v1 = 70, v2 = 80. With
player 1: value for the others is 80. Without player 1:
welfare for the others is 100. p1 = 100 − 80. Similarly for
player 2, p2 = 100 − 70 But, total payment is 20 + 30 < 100!
Cost is not covered

5. STRENGTHS AND WEAKNESSES
• All players have an incentive to be honest
about how they value the good.
• Individuals may be subject to a Tax that
must then be 'thrown away' (at least not
spent on any of the individuals benefitting
from the public good).
• We might have to charge agents money in
order to get this to work so it could be sum
of payment greater than zero

6. Properties:
(1) Optimal to tell the truth
(2) Voter only pays when decisive.
(3) Payments < benefits received
(4) As population grows less of a problem with excess
revenue.

7. CLARK-GROVES MECHANISM
Step 1 : Individuals report their value for the bridge vi
Step 2 : Add up the reported values.
Step 3 : If Sum of Reports – Cost of Bridge >0 Build Bridge
If Sum of Reports – Cost of Bridge <0 Don’t Build
Step 4 : If the individual’s value was decisive, i.e.
Sum of Others’ Reports < Cost of Bridge < Sum of all Reports
Charge the individual = Cost of Bridge – Sum of others’ reports