Abstract
Providing a public good that causes a local harm to its host poses two problems previously unexplored together: where to locate it and how large it should be. We propose a mechanism combining some market-like properties with a modified second-price auction. The mechanism selects a host, a facility size, a compensation for hosting the project, and determines how the compensation is split among the non-hosts. If each community bids truthfully for becoming the host–a strategy from which no community has incentives to deviate–the selected allocation is globally optimal, even if communities’ preferences are private information. In contrast with the literature, the host pays the second-highest bid while receiving the market benefits to prevent distortions in the optimal size.
Files and links
Request a publication
Due to Copyright we cannot publish this article but you are very welcome to request a copy from the author. Please just fill in the information beneath.