Sixth Problem: How to Encourage the Sincere Revelation of Preferences

Abstract

One of the main motivations for resorting to collective decision making is to elicit the preferences of the persons involved and aggregate these in a meaningful way into a collective choice. The very idea of individual preference based social choice rests on the assumption that the individual preferences used as inputs in the process of preference aggregation are the true preferences of the individuals. Indeed, the collective goods provision problems are sometimes “solved” by resorting to voting procedures. These problems stem from the fact that those optimality results that characterize private good economies with large numbers of buyers and sellers are not generalizable into economies dealing with public or collective goods (or “bads”, for that matter). In particular, the result according to which the perfect market mechanism leads to Pareto optimal resource allocation when private goods are traded does not apply to public goods. In other words, while for the private goods individual utility maximizing behaviour leads to a situation where nobody’s welfare can be increased without worsening at least one other individual’s welfare, this is not the case for public goods (see Riker and Ordeshook, 1973, pp. 244–249).