Two agents have to choose one of three alternatives. Their ordinal rankings of these alternatives are commonly known among them. The rankings are diametrically opposed to each other. Ex-ante efficiency requires that they reach a compromise, that is choose the alternative which they both rank second, if and only if the weighed sum of their von Neumann Morgenstern utilities from this alternative exceeds the weighted sum of utilities when either agent's most preferred alternative is chosen. We assume that the von Neumann Morgenstern utilities from this alternative exceeds the weighted sum of utilities when either agent's most preferred alternative is chosen. We ssume that the von Neumann Morgenstern utilities of the middle ranked alternative are independent and identically distributed, privately observed random variables, and ask whether there are incentive compatible decision rules which elicit utilities and implement efficient decisions. We show that no such decision rules exist if the distribution of agents' types has a density with full support. We also study the problem of finding second-best decision rules in our set-up, and explain how this problem differs from more familiar second-best problems. We give analytical and numberical insights into the nature of second-best rules. The compromise problem studied in this paper is closely related to a public goods problem in which individual agents face a liquidity constraint, but no participation constraint needs to be satisfied.
(This abstract was borrowed from another version of this item.)
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roger B. Myerson & Mark A. Satterthwaite, 1981.
"Efficient Mechanisms for Bilateral Trading,"
469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Werner Güth & Martin Hellwig, 1986.
"The private supply of a public good,"
Journal of Economics,
Springer, vol. 5(1), pages 121-159, December.
- Bengt Holmstrom & Roger B. Myerson, 1981.
"Efficient and Durable Decision Rules with Incomplete Information,"
495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
- Bhaskar Dutta & Hans Peters & Arunava Sen, 2007.
"Strategy-proof Cardinal Decision Schemes,"
Social Choice and Welfare,
Springer, vol. 28(1), pages 163-179, January.
- Dutta, Bhaskar & Peter, Hans & Sen, Arunava, 2005. "Strategy-proof Cardinal Decision Schemes," The Warwick Economics Research Paper Series (TWERPS) 722, University of Warwick, Department of Economics.
- Rafael Hortala-Vallve, 2012.
Journal of Theoretical Politics,
, vol. 24(4), pages 526-554, October.
- Border, Kim C, 1991. "Implementation of Reduced Form Auctions: A Geometric Approach," Econometrica, Econometric Society, vol. 59(4), pages 1175-87, July.
- Satterthwaite, Mark Allen, 1975. "Strategy-proofness and Arrow's conditions: Existence and correspondence theorems for voting procedures and social welfare functions," Journal of Economic Theory, Elsevier, vol. 10(2), pages 187-217, April.
- repec:cup:cbooks:9780521551847 is not listed on IDEAS
- Matthew O Jackson & Hugo F Sonnenschein, 2007. "Overcoming Incentive Constraints by Linking Decisions -super-1," Econometrica, Econometric Society, vol. 75(1), pages 241-257, 01.
- Gibbard, Allan, 1973. "Manipulation of Voting Schemes: A General Result," Econometrica, Econometric Society, vol. 41(4), pages 587-601, July.
- Rob, Rafael, 1989.
"Pollution claim settlements under private information,"
Journal of Economic Theory,
Elsevier, vol. 47(2), pages 307-333, April.
- Rob, R., 1988. "Pollution Claim Settlements Under Private Information," Papers 19-88, Tel Aviv.
- Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
- Cramton, Peter & Gibbons, Robert & Klemperer, Paul, 1987.
"Dissolving a Partnership Efficiently,"
Econometric Society, vol. 55(3), pages 615-32, May.
- Peter Cramton & Robert Gibbons & Paul Klemperer, 1985. "Dissolving a Partnership Efficiently," Working papers 406, Massachusetts Institute of Technology (MIT), Department of Economics.
- Peter Cramton & Robert Gibbons & Paul Klemperer, 1987. "Dissolving a Partnership Efficiently," Papers of Peter Cramton 87econ, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Mailath, George J & Postlewaite, Andrew, 1990. "Asymmetric Information Bargaining Problems with Many Agents," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 351-67, July.
- repec:cup:cbooks:9780521536721 is not listed on IDEAS
- d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
- Martin F. Hellwig, 2003.
"Public-Good Provision with Many Participants,"
Review of Economic Studies,
Wiley Blackwell, vol. 70(3), pages 589-614, 07.
- Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
When requesting a correction, please mention this item's handle: RePEc:cla:levrem:784828000000000188. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.