Funding Public Projects: A Case for the Nash Product Rule

With F. Brandt, M. Greger, D. Peters, C. Stricker, and W. Suksompong
Journal of Mathematical Economics, 99, 2022

We study a mechanism design problem where a community of agents wishes to fund public projects via voluntary monetary contributions by the community members. This serves as a model for public expenditure without an exogenously available budget, such as participatory budgeting or voluntary tax programs, as well as donor coordination when interpreting charities as public projects and donations as contributions. Our aim is to identify a mutually beneficial distribution of the individual contributions. In the preference aggregation problem that we study, agents with linear utility functions over projects report the amount of their contribution, and the mechanism determines a socially optimal distribution of the money. We identify a specific mechanism—the Nash product rule—which picks the distribution that maximizes the product of the agents’ utilities. This rule is Pareto efficient and incentivizes agents to contribute their entire budget while spending each agent’s contribution only on projects the agent finds acceptable.