Incentive-compatible social choice

Many situations present a social choice problem where different self-interested agents have to agree on joint, coordinated decisions. For example, power companies have to agree on how to use the power grid, and airlines have to agree on how to schedule takeoffs and landings. Mechanisms for social choice are called incentive-compatible when cooperative behavior is optimal for all parties. The most well-known examples of incentive-compatible mechanisms are auctions. However, the party that receives the auction revenue has an incentive to manipulate the outcome to increase the revenue. For example, a power grid operator has an interest to reduce capacity and drive up prices. Conversely, if it provides sufficient capacity to every user it derives no revenue to cover its costs. We present a mechanism for social choice that is incentive-compatible without generating a payment surplus. We give several examples of applications where it solves the social choice problem without unwanted incentives, and provides significantly better overall utility than any other known mechanism.