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Copmment on Egalitarianism under Incomplete Information

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Abstract

The paper aims at extending the egalitarian principle to environments with incomplete information. The approach is primarily axiomatic, focusing on the characteristic property of monotonicity: no member of the society should be worse off when more collective decisions are available. I start by showing the incompat- ibility of this property with incentive efficiency, even in quasi-linear environments. This serious impossibility result does not follow from the mere presence of incentive constraints, but instead from the fact that information is incomplete (asymmetric information at the time of making a decision). I then weaken the monotonicity property so as to require it only when starting from incentive compatible mecha- nisms at which interim utilities are transferable (in a weak sense). Adding other axioms in the spirit of Kalai's (Econometrica, 1977, Theorem 1) classical character- ization of the egalitarian principle under complete information, I obtain a partial characterization of a natural extension of the lex-min solution to problems with incomplete information. Next, I prove that, in each social choice problem, there is a unique way of rescaling the participants' interim utilities so as to make this solu- tion compatible with the ex-ante utilitarian principle. These two criteria coincides in the rescaled utilities exactly at the incentive ecient mechanisms that maxi- mize Harsanyi and Selten's (Management Science, 1972) weighted Nash product. These concepts are illustrated on classical examples of profit-sharing, public good production and bilateral trade. The richness of the topic of social choice under in- complete information is illustrated by considering two alternative extensions of the egalitarian principle { one based on an idea of equity from the point of view of the individuals themselves (given their private information) instead of an uninformed third party (social planner or arbitrator), and another notion based on the idea of

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File URL: http://www.brown.edu/Departments/Economics/Papers/2010/2010-4_paper.pdf
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Bibliographic Info

Paper provided by Brown University, Department of Economics in its series Working Papers with number 2010-4.

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Date of creation: 2010
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Handle: RePEc:bro:econwp:2010-4

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Postal: Department of Economics, Brown University, Providence, RI 02912

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  9. DE CLIPPEL, Geoffroy, 2002. "Values for cooperative games with incomplete information: an eloquent example," CORE Discussion Papers 2002014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  12. de Clippel, Geoffroy & Bejan, Camelia, 2011. "No profitable decompositions in quasi-linear allocation problems," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1995-2012, September.
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  20. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  22. Geoffroy de Clippel, 2004. "The Type-Agent Core for Exchange Economies with Asymmetric Information," Working Papers 2004-18, Brown University, Department of Economics.
  23. Aumann, Robert J., 2003. "Presidential address," Games and Economic Behavior, Elsevier, vol. 45(1), pages 2-14, October.
  24. Maniquet, François & Sprumont, Yves, 2010. "Sharing the cost of a public good: An incentive-constrained axiomatic approach," Games and Economic Behavior, Elsevier, vol. 68(1), pages 275-302, January.
  25. Feldman, Allan M & Kirman, Alan, 1974. "Fairness and Envy," American Economic Review, American Economic Association, vol. 64(6), pages 995-1005, December.
  26. de Clippel, Geoffroy & Pérez-Castrillo, David & Wettstein, David, 2012. "Egalitarian equivalence under asymmetric information," Games and Economic Behavior, Elsevier, vol. 75(1), pages 413-423.
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  28. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
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  35. Geoffroy de Clippel, 2010. "Copmment on "The Veil of Public Ignorance"," Working Papers 2010-3, Brown University, Department of Economics.
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Cited by:
  1. Geoffroy de Clippel & David Perez-Castrillo & David Wettstein, 2010. "Egalitarian Equivalence under Asymmetric Information," Working Papers 2010-5, Brown University, Department of Economics.

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