EXPERIMENTAL TEST OF A NASH-EFFICIENT MECHANISM FOR COLLECTIVE CHOICEWITH COMPENSATION

The social conflict over siting hazardous facilities presents a formid able problem in public decision making. Collective choice mechanisms i ncorporating compensation have been proposed to resolve such conflicts but existing mechanisms have theoretical shortcomings. We test a new mechanism that has Pareto efficient, individually rational, Nash equil ibria. We investigate behavior and convergence in multiperiod mechanis ms with computer simulations and laboratory experiments. In both the s imulations and the laboratory experiments, the new mechanism outperfor med existing mechanisms. However, in the laboratory, the mechanism was unable to solve the difficult coordination problem of reaching a Nash equilibrium under conditions of incomplete information. A one period version of the mechanism based on max-min behavior significantly outpe rformed the multiperiod mechanism.