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Strategy-Proof Club Formation with Indivisible Club Facilities

  • Economics Discussion Papers
  • December 3, 2020
  • Bhaskar Dutta,
  • Bhaskar Dutta, Anirban Kar

We investigate the strategy-proof provision and financing of indivisible club good facilities when individuals are subject to congestion costs that are nondecreasing in the number of other club members and in a private type parameter. An allocation rule specifies how the individuals are to be partitioned into clubs and how the costs of the facilities are to be shared by club members as a function of the types. We show that no allocation rule is strategy-proof and cost efficient (i.e., it always minimizes the aggregate of the financial and congestion costs of the club facilities) when congestion costs are strictly increasing in the type parameter, but that these properties are compatible if congestion costs are dichotomous and costs are equally shared within a club. We also provide examples of strategy-proof allocation rules with equal cost sharing that are (i) Pareto optimal and (ii) Pareto optimal, nondictatorial, and individually rational when the congestion cost is linear in the type parameter.

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