Veto Constraint in Mechanism Design: Inefficiency with Correlated Types
AbstractWe consider bargaining problems in which parties have access to outside options, the size of the pie is commonly known and each party privately knows the realization of her outside option. We allow for correlations in the distributions of outside options. Parties have a veto right, which allows them to obtain at least their outside option payoff in any event. Besides, agents can receive no subsidy ex post. We show that inefficiencies are inevitable whatever the exact form of correlation, as long as private information is dispersed. We also illustrate how veto constraints differ from ex post participation constraints. (JEL C78, D82)
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Date of creation: 05 Jun 2006
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Other versions of this item:
- Olivier Compte & Philippe Jehiel, 2009. "Veto Constraint in Mechanism Design: Inefficiency with Correlated Types," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 182-206, February.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-10 (All new papers)
- NEP-CDM-2006-06-10 (Collective Decision-Making)
- NEP-GTH-2006-06-10 (Game Theory)
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