Public Good Provision with No Extortion

I consider a classic public good provision problem when the government has the power to tax its citizens. In this environment, participation constraints need not be satisfied. I replace such participation constraints with a weaker condition, which I call no-extortion, that limits the ability of the government to extract funds from its citizens. It is well known that there does not exist any strategy-proof, efficient, and budget-balanced mechanism. In fact, any strategy-proof and efficient mechanism that additionally satisfies individual-rationality or universal-participation fails to raise any revenue in large populations. However, replacing these conditions with no-extortion yields a positive result. There exists a simple, detail-free mechanism that is strategy-proof, efficient, extortion-free, and (asymptotically) budget-balanced in large populations. Furthermore, among all strategy-proof, efficient, and extortion-free mechanisms, this mechanism is undominated and uniquely maximizes ex-post revenue (minimizing any potential, though unlikely, budget deficit).