A Simple Supermodular Mechanism that Implements Lindahl Allocations

Authors


  • I am grateful to Mark Walker, John Wooders, Martin Dufwenberg, P. J. Healy, Rabah Amir, an editor, an associate editor, and two anonomous referees for their helpful comments.

Abstract

This paper introduces a new incentive-compatible mechanism which, for general preference environments, implements Lindahl allocations as Nash equilibria. We provide an example that having a mechanism induce a supermodular game is not typically sufficient to guarantee dynamic stability of equilibrium. However, for the new mechanism, inducing a supermodular game guarantees that the best reply mapping is a contraction. Thus, this new mechanism provides a connection between the desirable welfare properties of Lindahl allocations and the theoretical/convergence properties of games whose best reply mappings are a contraction.

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