Incomplete Information, Incentive Compatibility and the Core
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  coarse core, or as an attempt to introduce coalitional contracts in the Holmstrom-Myerson  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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