Voting and Lottery Drafts as Efficient Public Goods Mechanisms
This paper characterizes interim efficient mechanisms for public good production and cost allocation in a two-type environment with risk-neutral, quasi-linear preferences and fixed-size projects, where the distribution of the private good, as well as the public goods decision, affects social welfare. An efficient public good decision can always be accomplished by a majority voting scheme, where the number of "YES" votes required depends on the welfare weights in a simple way. The results are shown to have a natural geometry and an intuitive interpretation. We also extend these results to allow for restrictions on feasible transfer rules, ranging from the traditional unlimited transfers to the extreme case of no transfers. For a range of welfare weights, an optimal scheme is a two-stage procedure which combines a voting stage with a second stage where an even-chance lottery is used to determine who pays. We call this the "lottery draft mechanism" Since such a cost-sharing scheme does not require transfers, it follows that in many cases transfers are not necessary to achieve the optimal allocation. For other ranges of welfare weights the second stage is more complicated, but the voting stage remains the same. If transfers are completely infeasible, randomized voting rules may be optimal. The paper also provides a geometric characterization of the effects of voluntary participation constraints.
© 1994 The Review of Economic Studies Limited. First version received January 1992; final version accepted November 1993 (Eds.). Acknowledgments. This paper replaces an earlier version, entitled "On the Optimality of Lottery Drafts: Characterization of Interim Efficiency in a Public Goods Problem." We have benefited from comments by two referees and by seminar participants at Caltech, MIT, Northwestern, Texas, and Texas A&M, and the 1989 FRET Conference in San Diego. We especially wish to acknowledge useful conversations with Kim Border and Ed Green. Ledyard gratefully acknowledges the financial support of the Flight Projects Office of the Jet Propulsion Laboratory of NASA. Palfrey gratefully acknowledges the support of the National Science Foundation under grants SES-8718657 and SES-8815097.