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Informational Size and Incentive Compatibility

  • Richard McLean

    ()

    (Rutgers University)

  • Andrew Postlewaite

    ()

    (University of Pennsylvania)

We examine a general equilibrium model with asymmetrically informed agents. The presence of asymmetric information generally presents a conflict between incentive compatibility and Pareto efficiency. We present a notion of informational size and show that the conflict between incentive compatibility and efficiency can be made arbitrarily small if agents are of sufficiently small informational size. Copyright The Econometric Society 2002.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 6 (November)
Pages: 2421-2453

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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:6:p:2421-2453
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  1. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  2. Gul, Faruk & Postlewaite, Andrew, 1992. "Asymptotic Efficiency in Large Exchange Economies with Asymmetric Information," Econometrica, Econometric Society, vol. 60(6), pages 1273-92, November.
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