Determine the outcome to public-goods problem

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Reference no: EM133629733

Consider a scenario in which a group of people is trying to determine the outcome to a public-goods problem (e.g., whether to build a new park). Each person has a utility function given by () , where is the outcome of the public-good decision. The goal is to maximize the sum of the individuals' utility. The Vickrey-Clarke-Groves (VCG) mechanism works as follows:

1. The decision-maker (government) asks each individual to report how much he or she is willing to pay for units of the public good.

2. The decision-maker picks the level of the public good that maximizes the sum of reported utilities.

3. The decision-maker calculates the outcome that maximizes the sum of reported utilities for all agents except one (call her agent ).

4. Each person pays a tax equal to the net cost that person imposes on the other agents.

The VCG is a clever way to elicit truthful revelations about willingness to pay or utility from everyone involved in the provision and consumption of the public good. However, it is not without its problems. Which of the following is a problem for the VCG? Choose one or more: The VCG leads to an optimal.

Reference no: EM133629733

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