Demand Revealing Schemes for Public Goods

Introduction

Public goods are non-excludable and non-rival in nature, which means that individuals cannot be effectively excluded from their use, and the usage of such goods by other individuals also will not reduce the availability of such kinds of goods. The most important characteristic of a public good is that consumption by one individual does not actually reduce the amount available to be consumed by other individuals.

Public goods are those types of goods which are provided by the government through the budget, like highways, public parks, defence, ports, fresh air, national security, common language, flood control systems, lighthouses, street lights, etc.

These goods are not created in the market, and they are being provided by the government with the help of various provisions in the budget. These types of goods are also known as social goods, and they are not consumed by an individual person but such types of goods are being consumed collectively by society. For example, in the case of highways, only one person is not using the highway facility, but it is being used collectively by several persons.

As public goods play a very important role in the economy so their provision also becomes a major part of concentration for various economists because the market mechanism is not sufficient and not reliable in providing public goods because of the preference revelation problem present in the economy. Various mechanisms and theories have been developed by various economists to study the demand and preferences of the public for public goods.

Demand revealing is a process where collective decisions are being made and which is being designed to choose the option of greatest value, and in this process, the option is being identified by giving participants a chance to report about the intensities of their preferences honestly. Thus, it creates the incentive for people to reveal their preferences for public goods in a truthful manner.

The demand-revealing schemes for public goods have been studied by various economists like Edward H Clarke, Groves and Ledyard. The term DR (Demand revealing) was described by Edward Clarke in 1972, and in 1975, Groves and Loeb worked on this process independently. DR has also been called a pivotal mechanism in economics.

Demand Revealing Mechanisms for Public Goods

1. Vickery-Clarke-Groves Mechanism -Read in detail

2. Groves-Ledyard Mechanism -Read in detail

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29. Groves-Ledyard Mechanism
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