Review
Green and Laffont provide a rigorous mathematical treatment of the properties of the new 'incentive-compatible' (demand revealing) mechanisms which were also the subject of a recent special issue of this journal (Spring supplement, 1977). The mechanisms help to overcome 'impossibility results' that had led to a growing nihilism in social choice and public expenditure theory over the last several decades. The authors point to important recent generalizations of Arrow's results (e.g. the Gibbard-Satterwaite theorem) that continued to buttress this nihilism and demonstrated that 'no social choice theory can provide efficient choices and truthful revelation of preferences under the most general of circumstances.'
During this period, social choice and public expenditure theory focused much attention on the incentive or preference revelation problem --a concern shared by the literature on 'market socialism' during the 1930's and 1940's. By the early 1970's, the 'free rider' problem had been largely solved and out of related work on incentives in informationally decentraized systems, a class of mechanisms emerged that pointed to a richness of possibilities in the design of 'satisfactory' social choice mechanisms.
Green and Laffont's book builds upon their earlier characterization of these mechanisms (Econometrica, 1977) which paralleled Tideman and Tullock's exposition and generalization of demand revelation (JPE, 1976), Part II of the book provides a rich understanding of how satisfactory mechanisms and their dominant (individual strategy-free) properties are derived. The possibilities for positive results in the design of social chokce mechanisms grow out of two key assumptions --transferability and additive separability of utility. The latter assumption, for example, permits one to set aside income effects so as to achieve dominance in a partial equilibrium setting.
The authors provide an in-depth explanation of the limitations of these mechanisms in a way that permits the consideration of trade-offs with the dominant strategy property. Typically, for example, a surplus (e.g. budget imbalance) is created which must be disposed of and some individuals may be worse off under the f'mal outcome than under some prior arrangement (e.g. lack of individual rationality). Group manipulation (e.g. coa-Public Choice 35, 379-382 (1980)