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On the Informational Requirements of Decentralized Pareto-Satisfactory Mechanisms in Economies with Increasing Returns

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  • Tian, Guoqiang

Abstract

This paper investigates the dimension requirements of informationally decentralized Pareto-satisfactory processes in production economies with increasing returns to scale or more general types of non-convexities. We show that the marginal cost pricing (MCP) mechanism is informationally effcient over the class of non-convex production economies where MCP equilibrium allocations are Pareto effcient. We then discuss the informational requirements of realizing Pareto effcient allocations for a general class of non-convex production economies. We do so by examining the dimension of the message space of the marginal cost pricing mechanism with transfers. Since the set of marginal cost pricing equilibrium allocations with transfers contains Pareto effcient allocations as a subset for every economy under consideration, Pareto e±cient allocations can be realized through the MCP mechanism with transfers, which is informationally decentralized and has a finite-dimensional message space. This result is sharply contrasted to the impossibility result given in Calsamigla (1977).

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41226.

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Date of creation: 2004
Date of revision: Oct 2006
Handle: RePEc:pra:mprapa:41226

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Keywords: Informational Requirements; Decentralized Pareto-Satisfactory Mechanisms; Increasing Returns;

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  1. Vohra, Rajiv, 1988. "On the existence of equilibria in economies with increasing returns," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 179-192, April.
  2. Calsamiglia, Xavier & Kirman, Alan, 1993. "A Unique Informationally Efficient and Decentralized Mechanism with Fair Outcomes," Econometrica, Econometric Society, vol. 61(5), pages 1147-72, September.
  3. Hurwicz, Leonid, 1973. "The Design of Mechanisms for Resource Allocation," American Economic Review, American Economic Association, vol. 63(2), pages 1-30, May.
  4. Bonnisseau, Jean-Marc, 1988. "On two existence results of equilibria in economies with increasing returns," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 193-207, April.
  5. Sato, Fumitaka, 1981. "On the informational size of message spaces for resource allocation processes in economies with public goods," Journal of Economic Theory, Elsevier, vol. 24(1), pages 48-69, February.
  6. Kenneth Mount & Stanley Reiter, 1973. "The Informational Size of Message Spaces," Discussion Papers 3, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Hurwicz, Leonid, 1999. " Revisiting Externalities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(2), pages 225-45.
  8. Cornet, Bernard, 1988. "General equilibrium theory and increasing returns : Presentation," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 103-118, April.
  9. Bonnisseau, Jean-Marc & Cornet, Bernard, 1988. "Existence of equilibria when firms follow bounded losses pricing rules," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 119-147, April.
  10. Maskin, Eric, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 23-38, January.
  11. Stefan Reichelstein & Stanley Reiter, 1985. "Game Forms with Minimal Strategy Spaces," Discussion Papers 663, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Calsamiglia, Xavier, 1977. "Decentralized resource allocation and increasing returns," Journal of Economic Theory, Elsevier, vol. 14(2), pages 263-283, April.
  13. Walker, Mark, 1977. "On the informational size of message spaces," Journal of Economic Theory, Elsevier, vol. 15(2), pages 366-375, August.
  14. Takashi Ishikida & Thomas Marschak, 1996. "Mechanisms that efficiently verify the optimality of a proposed action," Review of Economic Design, Springer, vol. 2(1), pages 33-68, December.
  15. Osana, Hiroaki, 1978. "On the informational size of message spaces for resource allocation processes," Journal of Economic Theory, Elsevier, vol. 17(1), pages 66-78, February.
  16. Hurwicz, Leonid, 1979. "On allocations attainable through Nash equilibria," Journal of Economic Theory, Elsevier, vol. 21(1), pages 140-165, August.
  17. Williams, Steven R, 1986. "Realization and Nash Implementation: Two Aspects of Mechanism Design," Econometrica, Econometric Society, vol. 54(1), pages 139-51, January.
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