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Efficient Compromising

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  • Tilman Börgers
  • Peter Postl

Abstract

Two agents must select one of three alternatives. Their ordinal rankings are commonly known and diametrically opposed. Efficiency requires choosing the alternative the agents rank second whenever the weighted sum of their von Neumann Morgenstern utilities is higher than under either agent's favorite alternative. The agents' utilities of the middle-ranked alternative are i.i.d., privately observed random variables. In our setup, which is closely related to a public goods problem where agents face liquidity constraints but no participation constraints, decision rules that truthfully elicit utilities and implement efficient decisions do not exist. We provide analytical and numerical results on second-best rules.
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Suggested Citation

  • Tilman Börgers & Peter Postl, 2005. "Efficient Compromising," Levine's Bibliography 784828000000000188, UCLA Department of Economics.
    • Handle: RePEc:cla:levrem:784828000000000188
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    File URL: http://www.ucl.ac.uk/~uctpa01/Compromising.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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