Overview

Suppose the public decision maker (hereafter called the planner) faces a specific cost- or surplus-sharing problem and has made up his mind about the just outcome (e.g., he adopts one of the five paramount methods for sharing the cost of a public good discussed in Chapter 6). He still has one difficulty to solve before his favorite solution is implemented, namely, he must elicit from individual agents a report of their preferences (in this particular example, he must find out about the individual benefits from consuming the public good).

Information about individual preferences is fundamentally private to the agent himself. Even if I have clear evidence that you prefer wine over beer, I cannot deny your right of pretending to the contrary.

Thus, in a legal and practical sense, all information about preferences must emanate from the concerned agents themselves. This implies that an agent can influence the outcome of the mechanism by falsifying his preferences (e.g., by understating or overstating the benefit he derives from the public good). Of course, he will manipulate in such fashion only when it is in his interest to do so.