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Suppose there are two farmers, Annie Oakley and Calamity Jane and one rancher, Buffalo Bill. Bill's cattle roam around Annie and Jane's fields eating and
Suppose there are two farmers, Annie Oakley and Calamity Jane and one rancher, Buffalo Bill. Bill's cattle roam around Annie and Jane's fields eating and trampling their crops. Bill saves $6 in feed costs due to the crops his cattle eat. Annie and Jane experience $7 and $8 respectively in crop losses caused by the cattle. Fencing Bill's cattle in costs $10. The social value of the fence is 7+8 10 6<0, so the efficient decision is not to fence. Simply asking the parties to report their values would give Annie and Jane incentives to exaggerate their benefits to get the fence built. They could use a Clarke mechanism to elicit true valuations and decide whether to fence. One way to fit this cost into the pivotal mechanism is to charge the fence costs evenly to the three agents and adjust their valuations accordingly. Va(1, )=(7-10/3) and Va(0, )=0, Vb(1, )=(8-10/3) and Vb(0, )=0, and Vc(1, )=(-6-10/3) and Vc(0, )=0. So the type profile is =(11/3, 14/3, -28/3)
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