ECONOMY

chapter 27
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VOTING AND
EFFICIENT PUBLIC
GOOD
MECHANISMS
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john ledyard
Two neighbors are considering buying a street light. It costs $100 to install. Alice
values the light at $70. Bartvaluesitat$60. If they rely solely on the marketplace to
make this decision and do not act together, neither will buy the lamp. However, it is
clear that both would be better off if they acted together to make the purchase and
split the cost. This street light is a public good—a good that cannot easily be denied
to others once the allocation and payment for the good has been provided. Providing
clear air and water or providing national security are examples of public goods. There
are many others.
In this chapter, I am interested in processes for the allocation and financing of
public goods. I begin by looking at markets. Market processes are widely used for
the allocation of many types of goods. There are several theoretical rationales for this
ubiquity. Stated concisely, they say “Markets Work.” But, as the above example shows,
markets won’t necessarily “work” when asked to allocate public goods. Instead, voting
processes are widely used for that task. There is little theoretical rationale for their
ubiquity. In an effort to fill the gap, I am going to look for conditions under which we
can say “Voting Works.”
∗ In this chapter, I have relied heavily on past collaborations with Ted Groves, Tom Palfrey, and
Marcus Berliant. I acknowledge each in the appropriate section below. They are responsible for aiding
and abetting me in my research. They are not responsible for the flights of fantasy I have taken from our
past work.