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Incentive-based Decentralization: Expected-Externality Payments Induce Efficient Behaviour in Groups

In: Arrow and the Ascent of Modern Economic Theory

Author

Listed:
  • John W. Pratt
  • Richard Zeckhauser

Abstract

Thirty-five years ago Kenneth Arrow asked a profound question: Is it ‘formally possible to pass from a set of known individual tastes to a pattern of social decision-making, the procedure in question being required to satisfy certain natural conditions’? (Arrow, 1951, p. 2). He laid out an appealing set of conditions and demonstrated that the answer was ‘No’. The vast literature that followed, frequently played musical chairs with his requirements while it tiptoed along the border of infeasibility.

Suggested Citation

  • John W. Pratt & Richard Zeckhauser, 1987. "Incentive-based Decentralization: Expected-Externality Payments Induce Efficient Behaviour in Groups," Palgrave Macmillan Books, in: George R. Feiwel (ed.), Arrow and the Ascent of Modern Economic Theory, chapter 13, pages 439-483, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-07239-2_13
    DOI: 10.1007/978-1-349-07239-2_13
    as

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