Question

A referendum on the ballot asks people to choose from between three choices: a payment of $0 to not cleanup roadway litter, a payment of $10 to partially clean litter, and a payment of $20 to clean up all litter. This survey is

		Incentive compatible because it is a binding referendum
		Not incentive compatible because it has more than two choices
		Incentive compatible because it is easily understood.
		Not incentive compatible because it is only seen by registered voters

Answer 1

An incentive compatibility problem is the problem aroused due to the incentives given to the decision maker which do not match with the incentives required for the mechanism to achieve its goal. An incentive compatibility problem occurs when individuals' incentives differ from the firm's incentives.

The correct option is (b).

Not incentive compatible because it has more than two choices.

When there are more than two choices available than it has no incentive compatibility.

Hope you got the answer.

Thanks.