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Unformatted text preview: Economics 310-2 Spring 2009 Professor Jeff Ely Problem Set 5 Due May 11 1. Lets reconsider the public goods problem and now suppose that the cost of producing the public good is no longer known. The two individuals 1 and 2 have values for the public good denoted v 1 , v 2 . The producer of the public good has cost c . Only the producer knows the value of c . In addition to the incentives for the consumers of the public good, we must now provide incentives for the produer to truthfully reveal his cost. When the good is produced, individuals 1 and 2 will earn their values v 1 and v 2 but the manager will have value- c . When the good is not produced, all will have value 0. (a) What is the utilitarian decision rule x * ( v, c ) as a function of the profile of val- ues/costs ( v 1 , v 2 , c ) (b) Does there exist a mechanism which implements the utilitarian decision rule x * , provides a dominant strategy to tell the truth, and balances the budget?...
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