Bartering Games in the Kolm Triangle

• Date: 01 June 2015
• Published date: 01 June 2015
• DOI: http://doi.org/10.1111/jpet.12101

BARTERING GAMES IN THE KOLM TRIANGLE

MATT VAN ESSEN

University of Alabama

Abstract

We study a public good mechanism that possesses several

attractive properties. In particular, the mechanism always

produces feasible allocations, induces a game where the

Nash equilibria are all individually rational, and, in con-

trast to the voluntary contribution mechanism, supports the

Lindahl allocation as a Nash equilibrium allocation. The

geometric framework of the Kolm triangle is employed to

illustrate the workings of the mechanism and provide intu-

ition for the main results.

1. Introduction

This paper is with the design of a practical mechanism that overcomes the

free rider problem in a standard public good economy. While it has been

known for some time that it is possible to design institutions that overcome

free riding incentives, to date none of the suggested “efficient” mechanisms

in the literature has stood the test of rigorous scrutiny.

The mechanisms due to Groves and Ledyard (1977) and Walker (1981)

are perhaps the most widely cited examples of efficient mechanisms (i.e.,

they both induce games whose Nash equilibria are all Pareto optimal).

Walker’s mechanism implements the Lindahl allocations of a public good

economy. While these mechanisms are both theoretically attractive, their

performance in an experimental setting has not been encouraging. Chen

and Tang (1998) experimentally study both the Groves–Ledyard (G–L) and

Walker mechanisms finding one G–L treatment converged to its equilibrium,

Matt van Essen, Department of Economics, Finance, and Legal Studies, University of

Alabama, Tuscaloosa, AL (mjvanessen@cba.ua.edu).

I am grateful to Harris Schlesinger, John Conlon, Mark Van Boening, an anonymous

referee, an associate editor, and an editor for comments.

Received June 16, 2013; Accepted June 23, 2013.

C2013 Wiley Periodicals, Inc.

Journal of Public Economic Theory, 17 (3), 2015, pp. 297–310.

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