Implementing Pareto Optimal and Individually Rational Outcomes by Veto
- 5 Downloads
We introduce a simple veto mechanism where each agent can veto any subset of alternatives, by paying a veto cost for each vetoed alternative. The outcome is the set of non-vetoed alternatives or, if this set is empty, some previously fixed alternative which is declared the disagreement outcome. Under fairly mild axioms to extend individual preferences over alternatives to sets of alternatives and assuming quasi-linear preferences over outcome-money bundles, we show that the Nash equilibrium outcomes of the veto mechanism coincide with the Pareto optimal outcomes which are individually rational according to the disagreement outcome. The positive result prevails when individual preferences admit indifferences and even for the case of two agents. We also show that under stronger axioms to extend preferences over alternatives to sets, strong Nash implementation (hence double implementation) is also possible with the same veto mechanism.
KeywordsNash implementation Veto mechanism Two-person implementation Implementation with awards
- Maskin E (1979) Implementation and strong Nash equilibrium. In: Laffont J-J (ed) Aggregation and revelation of preferences. Elsevier, Amsterdam, pp 433–439Google Scholar
- Maskin E (1985) The theory of implementation in Nash equilibrium. In: Hurwicz L, Schmeidler D, Sonnenschein H (eds) Social goals and social organization (Volume in Memory of Elisha Pazner). Cambridge University Press, Cambridge, pp 173–204Google Scholar
- Moore J (1992) Implementation, contracts and renegotiation in environments with complete information. In: Laffont JJ (ed) Advances in economic theory, vol 1. Cambridge University Press, Cambridge, pp 182–282Google Scholar