Split the Budget Surplus: Towards a Second Best Mechanism for a Discrete Public Good Under Private Information

Abstract

We propose and study the following mechanism: Agents simultaneously make contributions. If the total contribution is below the cost, contributions are refunded; otherwise the public good is provided and budget surplus, if there is any, is shared equally among the agents. Our mechanism mitigates the incentive to under-contribute in the well-studied “subscription mechanism” where budget surplus is retained by the mechanism designer. We identify conditions under which our mechanism achieves the maximal total expected gain among all Bayesian mechanisms that are incentive compatible, individually rational, and budget-balanced.