1IMPLEMENTING PARETO OPTIMAL AND INDIVIDUALLY RATIONAL OUTCOMES BY VETO M.Remzi Sanver*

We introduce a simple veto mechanism where each agent can veto any subset of the set of alternatives, by paying a veto cost per unit of alternative vetoed. The outcome is the set of non-vetoed alternatives. In case this set is empty, a previously fixed alternative is declared as the disagreement outcome. Under fairly mild axioms to extend individual preferences over alternatives to sets of alternatives and assuming quasi-linear preferences over outcome-money bundles, we show that the Nash equilibrium outcomes of the veto mechanism coincide with the Pareto optimal outcomes which are individually rational according to the disagreement outcome. The positive result prevails when indifferences are allowed in individual preferences and even in the case of only two agents. We also show that under stronger axioms to extend preferences over altenatives to sets, strong Nash implementation (hence double implementation) is also possible with the same veto mechanism