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Strategy-Proof Exchange

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  • Salvador Barbera
  • Matthew O. Jackson

Abstract

We consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences. In such a setting, standard allocation rules such as Walrasian equilibria or rational expectations equilibria are not compatible with individual incentives. We characterize the set of allocations rules which are incentive compatible, or in other words, the set of strategy-proof social choice functions. The social choice functions which are strategy-proof are those which can be obtained from trading according to pre-specified proportions. The number of proportions which can be accommodated is proportional to the number of agents. Such rules are necessarily inefficient, even in the limit as the economy grows.

Suggested Citation

  • Salvador Barbera & Matthew O. Jackson, 1993. "Strategy-Proof Exchange," Discussion Papers 1021, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1021
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    References listed on IDEAS

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