Informational Size and Incentive Compatibility
Richard McLean, Andrew Postlewaite
Econometrica · 2002 · Volume 70 · Issue 6
DOI: 10.1111/j.1468-0262.2002.00444.x
Abstract
We examine a general equilibrium model with asymmetrically informed agents. The presence of asymmetric information generally presents a conflict between incentive compatibility and Pareto efficiency. We present a notion of informational size and show that the conflict between incentive compatibility and efficiency can be made arbitrarily small if agents are of sufficiently small informational size.
Keywords
incentive compatibility, mechanism design, incomplete information
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