Daniel McFadden

The Human Side of Mechanism Design


Abstract

This lecture considers the human side of mechanism design, the behavior of economic agents in gathering and processing information. Economic juries charged with evaluating economic policy alternatives are the focus of this presentation. The selection and management of juries is a principle-agent problem involving the design of incentive mechanisms for participation and truthful revelation of values. This paper considers a simple general equilibrium economy in which juries of consumers are used to estimate the value of public projects. The impact of participation fees on jury selection and representativeness, and on statistical mitigation of response errors, is analyzed. Two incentive-compatible mechanisms for elicitation of public project preferences from juries, the Groves-Clarke mechanism in a version formulated by Green and Laffont, and a mechanism adapted by Palfrey and Rosenthal from the Becker-DeGroot-Marschak auction mechanism, are considered in the context of contingent valuation surveys. The presentation concludes with an outline of some behavioral evidence on the performance of jury incentive mechanisms.


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