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Incomplete Information, Incentive Compatibility, and the Core

  • Vohra, Rajiv

We consider an exchange economy in which agents possess private information at the time of engaging in state contingent contracts. While com-munication of private information is permitted, the true information state is not verifiable. The enforcement of contracts is, therefore, limited by incentive com-patibility constraints. We formalize a notion of the core for such an economy. Our analysis can be viewed as an attempt to incorporate incentive compatibility in Wilson's [1978] coarse core, or as an attempt to introduce coalitional contracts in the Holmstrom-Myerson [1983] notion of incentive efficiency. While there are some special cases in which the incentive compatible core is non-empty, our main result shows that this is not generally true.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 86 (1999)
Issue (Month): 1 (May)
Pages: 123-147

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Handle: RePEc:eee:jetheo:v:86:y:1999:i:1:p:123-147
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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