Government and the provision of public goods:from equilibrium models to mechanismdesign

Abstract

This paper investigates to what extent the seminal contribution of Samuelson has been or not incorporated by the theories of general equilibrium and mechanism design in their analysis of optimal public good provision, and more generally of optimal public policy. Our conclusion is that, far from taking up the challenges raised by Samuelson's contribution, both paradigms lead to the negative conclusion of the impossibility of a fully decentralized optimal public goods provision through market or market-like institutions, without giving a key for (re)defining the role of state in market economies.General equilibrium, Lindahl-Foley equilibrium, Wicksell-Foley public competitive equilibrium, private provision equilibrium, mechanism design, free-rider problem, incentive compatibility, principal-agent models,

Neoliberal Reason and Its Forms: De‐Politicisation Through Economisation

“…Later on, however, with Arrow, Debreu and Hahn leading the charge, its focus shifted towards theoretical general equilibrium analysis and social choice theory (see also Arrow ). Finally, once Commission affiliates realised the limitations to the project of establishing the micro‐foundations of an economy‐wide equilibrium with a sufficient level of generality, they turned their attention to the design and implementation of incentive‐compatible mechanisms that modify market structures (Florenzano ; Lee ).…”

“…Fairly early on, the post‐Walrasian school, partly conceding to this systematic economic criticism of the welfare state and partly acknowledging the severity of the information problem, also turned its attention to developing a theory of organisations in which the behaviour of actors in organisations were analysed as being opportunistic and prone to exploiting strategic informational asymmetries (Arrow , ). This path subsequently led to the systematic exploration of the conditions under which “informationally decentralised, incentive compatible mechanisms that simultaneously result in decisions maximising the total welfare [can be established with] the voluntary participation of the individuals and balanced transfers” (Florenzano :1071). The mechanism‐design approach concerns itself with its applications in auctions, bargaining mechanisms, exchange mechanisms (markets), regulation mechanisms (both of and in firms) and matching problems—in short, wherever social transactions suffer from “thinness” (insufficient voluntary participation), “clogged” information channels, or “incompatible” incentive structures that fail to prevent agents from performing welfare‐reducing behaviour or transacting elsewhere (Roth :286).…”