Question: Consider a mechanism design problem. Suppose there are two agents. The social planner is considering whether to provide a public good that costs K =

Consider a mechanism design problem. Suppose there are two agents. The social planner is considering whether to provide a public good that costs

K = 6. Let the valuations of the two agents be 1 = 2 and 2 = 8.

(a) Is it socially optimal to provide the public good?

(b) Consider the original VCG mechanism with h1(1) = 0 and h2(2) = 0 . What are the monetary transfers by the planner to each of the two agents? What is the problem with this mechanism?

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