Bidding for Social Alternatives: A Simple One-Stage Mechanism and Its Extension

We examine two alternative group decision mechanisms in a standard quasi-linear environment: a simple one-stage bidding mechanism and a multi-stage bidding mechanism. First, we show that the simple one-stage bidding mechanism works only in limited situations and may fail to realize an efficient social alternative. Then, we alternatively propose a multi-stage mechanism and show that there always exists a subgame perfect equilibrium in our multi-stage bidding mechanism, i.e. it does always work, and also that in any subgame perfect equilibrium of the mechanism a socially efficient alternative is realized. JEL Classification: C72; D71