The Provision of a Public Good with a direct Provision Technology and Large Number of Agents

This paper provides a limit result for the provision of a public good in a mechanism design framework as the number of agents gets large. A canonical example for a public good that is produced with a direct provision technology is Open Source Software. 1 Motivation Limit theorems for the provision of goods under asymmetric information about individual valuations with many agents yield strongly opposing results depending on whether the good to be provided is private or public. In the former case the impossibility result of ex-post efficient provision given the presence of both private information and voluntary participation follows from the Myerson and Satterthwaite (1983) Theorem. The result is developed in the context of a double auction. This inefficiency is alleviated when the number of agents (buyers and sellers) increases since each agent has smaller incentives to misrepresent his type. This follows from the fact that with many agents misrepresentation will decrease the probability of trade and will have only negligible effects on price at which an individual trade takes place. 0This paper is a revised version of Chapter 2 of my PhD dissertation at Universität Mannheim. I am grateful to my supervisor Martin Hellwig and two referees one of which helped to improve the analysis substantially.