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A mechanism design approach to allocating central government funds among regional development agencies

Kıbrıs, Özgür and Tapkı, İpek Gürsel (2014) A mechanism design approach to allocating central government funds among regional development agencies. Review of Economic Design, 18 (3). pp. 163-189. ISSN 1434-4742 (Print) 1434-4750 (Online)

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Official URL: http://dx.doi.org/10.1007/s10058-014-0160-7

Abstract

To allocate central government funds among regional development agencies, we look for mechanisms that satisfy three important criteria: efficiency, (individual and coalitional) strategy proofness (a.k.a. dominant strategy incentive compatibility), and fairness. We show that only a uniform mechanism satisfies all three. We also show that all efficient and strategy proof mechanisms must function by assigning budget sets to the agencies and letting them freely choose their optimal bundle. In choosing these budget sets, the agencies’ private information has to be taken into account in a particular way. The only way to additionally satisfy a weak fairness requirement (regions with identical preferences should be treated equally) is to assign all agencies the same budget set, as does the uniform mechanism. Finally and maybe more importantly, we show that the central government should not impose constraints on how much to fund an activity (e.g. by reserving some funds only for a particular activity): otherwise, there are no efficient, strategy proof and fair mechanisms, no matter how small these constraints are.

Item Type:Article
Uncontrolled Keywords:Regional development agencies; Uniform mechanism; Efficiency; Strategy proofness; Fairness; Single peakedness
Subjects:H Social Sciences > HB Economic Theory
ID Code:24582
Deposited By:Özgür Kıbrıs
Deposited On:10 Dec 2014 15:32
Last Modified:10 Dec 2014 15:32

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