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Informational Size and Incentive Compatibility

Author

Listed:
  • Richard McLean

    (Rutgers University)

  • Andrew Postlewaite

    (University of Pennsylvania)

Abstract

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.

Suggested Citation

  • Richard McLean & Andrew Postlewaite, 2002. "Informational Size and Incentive Compatibility," Econometrica, Econometric Society, vol. 70(6), pages 2421-2453, November.
    • Handle: RePEc:ecm:emetrp:v:70:y:2002:i:6:p:2421-2453
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