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Property Rights and Efficiency of Public-Good Mechanisms under Asymmetric Information

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  • Zvika Neeman

Abstract

The Coase theorem states that in public good problems, when there are no transaction costs, once property rights are well defined, the efficient outcome will always result. In particular, the assignment of property rights has, by itself, no efficiency implications; different allocations of property rights have merely distributive consequences. Under asymmetric information, however, the situation is completely different. The results of Rob (1989) and Mailath and Postlewaite (1990) indicate that, under asymmetric information, there is no way to overcome the "free-rider" problem. As the number of agents increases, the probablity of implementing the efficient outcome decreases to zero. By contrast, in this paper, we identify initial allocations of property rights that are compatible with the operation of an efficient mechanism. We present a mechanism that satisifies the conditions of incentive compatibility and individual rationality (with respect to this initial allocation of property rights) for the individuals and for the firm and that implements the efficient outcome in public good problems under asymmetric information. In this respect, we identify "efficient" property rights structures.

Suggested Citation

  • Zvika Neeman, 1994. "Property Rights and Efficiency of Public-Good Mechanisms under Asymmetric Information," Discussion Papers 1092, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1092
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    References listed on IDEAS

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    1. Rob, Rafael, 1989. "Pollution claim settlements under private information," Journal of Economic Theory, Elsevier, vol. 47(2), pages 307-333, April.
    2. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    3. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    4. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
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    Cited by:

    1. Pérez-Nievas, Mikel, 2000. "Interim efficient allocation mechanisms," UC3M Working papers. Economics 7220, Universidad Carlos III de Madrid. Departamento de Economía.
    2. Gradstein, Mark, 1998. "Provision of public goods in a large economy," Economics Letters, Elsevier, vol. 61(2), pages 229-234, November.

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