Information Aggregation and Adverse Selection
AbstractWe consider a general economy, where agents have private information about their types. Types can be multi-dimensional and potentially interdependent. We show that, if the interim distribution of types is common knowledge (the exact number of agents for each type is known), then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique Bayes-Nash equilibrium. Our result requires weak restrictions on preferences (Local Non-Common Indiff erence Property) and on the Pareto correspondence (Anonymity) and it is robust to small perturbations regarding the knowledge of the interim distribution. Our paper is useful in understanding the power of information aggregation in alleviating incentive constraints and is particularly pertinent to games with large populations, in which case the interim distribution of types converges to a unique distribution.
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Bibliographic InfoPaper provided by Courant Research Centre PEG in its series Courant Research Centre: Poverty, Equity and Growth - Discussion Papers with number 62.
Date of creation: 20 Jan 2011
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adverse selection; anonymity; first-best allocations; full implementation; information aggregation; mechanism design; single-crossing property; Pareto correspondence;
Find related papers by JEL classification:
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-05 (All new papers)
- NEP-CTA-2011-02-05 (Contract Theory & Applications)
- NEP-GTH-2011-02-05 (Game Theory)
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