Pareto Efficient Nash Implementation Via Approval Voting

Abstract: We study implementation of a social choice correspondence in the case of two players who have von Neumann - Morgenstern utilities over a finite set of social alternatives, and the mechanism is allowed to output lotteries. Our main positive result shows that a close variant of the popular approval voting mechanism succeeds in selecting only Pareto efficient alternatives as pure Nash equilibria outcomes. Moreover, we provide an exact characterization of pure Nash equilibria profiles and outcomes of the mechanism. The characterization demonstrates a close connection between the approval voting mechanism and the notion of average fixed point, which is a point that is equal to the average of all points that it does not Pareto dominate.