A Group Incentive Compatible Mechanism Yielding Core Allocations*

The possibilities for achieving desirable standards of economic performance in a decentralized, incentive compatible manner have recently received widespread research attention. Perhaps the most notable contribution in this area has been the remarkable paper by Groves and Ledyard [7]. They devised a mechanism for allocating resources in economies with public goods which gives agents broad opportunities for strategic behavior but under which Nash equilibrium results in Pareto optimal allocations. These allocations resulting from the Groves-Ledyard rules are not, however, guaranteed to be individually rational, so some agents may end up worse off under the operation of the mechanism than at their initial endowment points. Further, the mechanism is not group incentive compatible: if even two agents can coordinate their choices of messages, then the Nash equilibria are no longer stable and inefficiency may result [3].