Public goods, participation constraints, and democracy: A possibility theorem

It is well known that ex post e¢ cient mechanisms for the provision of indivisible public goods are not interim individually rational. However, the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided. This paper instead considers majority voting with uniform cost sharing as the relevant status quo. E¢ cient mechanisms may then exist, which also satisfy all agents’interim participation constraints. In this case, ex post ine¢ cient voting mechanisms can be replaced by e¢ cient ones without reducing any individual’s expected utility. Intuitively, agents with a low willingness to pay have to contribute more under majority rule than under an e¢ cient mechanism with a balanced budget. This possibility theorem is not universal in the sense of Schweizer (Games and Economic Behavior, 2005). Keywords: Public goods, ex post e¢ ciency, participation constraints, majority voting, possibility theorem. JEL classi…cations: D02, D61, D71, H41.