Efficiency in Collective Decision-Making via Quadratic Transfers

TL;DR

This paper introduces a quadratic-transfers mechanism for collective decision-making that ensures efficiency and budget balance, with transfers diminishing as group size increases, leading to near-certain selection of the optimal alternative.

Contribution

It presents a novel quadratic-transfers mechanism that achieves efficiency and budget balance in large groups without requiring detailed group characteristics.

Findings

Transfers vanish as group size grows large.

The mechanism converges to selecting the efficient outcome with high probability.

Ensures budget balance and incentive compatibility in large groups.

Abstract

Consider the following collective choice problem: a group of budget constrained agents must choose one of several alternatives. Is there a budget balanced mechanism that: i) does not depend on the specific characteristics of the group, ii) does not require unaffordable transfers, and iii) implements utilitarianism if the agents' preferences are quasilinear and their private information? We study the following procedure: every agent can express any intensity of support or opposition to each alternative, by transferring to the rest of the agents wealth equal to the square of the intensity expressed; and the outcome is determined by the sums of the expressed intensities. We prove that as the group grows large, in every equilibrium of this quadratic-transfers mechanism, each agent's transfer converges to zero, and the probability that the efficient outcome is chosen converges to one.