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Efficient Compromising

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  • Tilman Börgers
  • Peter Postl

Abstract

Two agents must select one of three alternatives. Their ordinal rankings are commonly known and diametrically opposed. Efficiency requires choosing the alternative the agents rank second whenever the weighted sum of their von Neumann Morgenstern utilities is higher than under either agent's favorite alternative. The agents' utilities of the middle-ranked alternative are i.i.d., privately observed random variables. In our setup, which is closely related to a public goods problem where agents face liquidity constraints but no participation constraints, decision rules that truthfully elicit utilities and implement efficient decisions do not exist. We provide analytical and numerical results on second-best rules.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 784828000000000188.

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Date of creation: 05 Jul 2005
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Handle: RePEc:cla:levrem:784828000000000188

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  2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521536721.
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  8. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 779, Cowles Foundation for Research in Economics, Yale University.
  9. Gueth,Werner & Hellwig,Martin, 1986. "The private supply of a public good," Discussion Paper Serie A, University of Bonn, Germany 40, University of Bonn, Germany.
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  16. Matthew O Jackson & Hugo F Sonnenschein, 2007. "Overcoming Incentive Constraints by Linking Decisions -super-1," Econometrica, Econometric Society, Econometric Society, vol. 75(1), pages 241-257, 01.
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Cited by:
  1. Fang, Hanming & Norman, Peter, 2005. "Overcoming Participation Constraints," Microeconomics.ca working papers, Vancouver School of Economics norman-05-04-22-05-35-30, Vancouver School of Economics, revised 28 Apr 2005.
  2. Borgers, Tilman & Smith, Doug, 2011. "Robust mechanism design and dominant strategy voting rules," MPRA Paper 37027, University Library of Munich, Germany.
  3. Jose Apesteguia & Miguel A. Ballester & Rosa Ferrer, 2006. "On the justice of voting systems," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 987, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Postl, Peter, 2013. "A ‘divide and choose’ approach to compromising," Economics Letters, Elsevier, Elsevier, vol. 119(2), pages 204-209.
  5. Rafael Hortala-Vallve, 2007. "Inefficiencies on Linking Decisions," Economics Series Working Papers 321, University of Oxford, Department of Economics.
  6. Schmitz, Patrick W. & Tröger, Thomas, 2011. "The (sub-)optimality of the majority rule," MPRA Paper 32716, University Library of Munich, Germany.
  7. Giles, Adam & Postl, Peter, 2014. "Equilibrium and effectiveness of two-parameter scoring rules," Mathematical Social Sciences, Elsevier, Elsevier, vol. 68(C), pages 31-52.
  8. Alex Gershkov & Benny Moldovanu & Xianwen Shi, 2013. "Optimal Mechanism Design without Money," Working Papers tecipa-481, University of Toronto, Department of Economics.

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