Efficiency and incentive compatibility in differential information economies

Summary. We introduce several efficiency notions depending on what kind of expected utility is used (ex ante, interim, ex post) and on how agents share their private information, i.e., whether they redistribute their initial endowments based on their own private information, or common knowledge information, or pooled information. Moreover, we introduce several Bayesian incentive compatibility notions and identify several efficiency concepts which maintain (coalitional) Bayesian incentive compatibility. Received: March 25, 1996; revised September 5, 1996     

DISTRIBUTING THE GAINS FROM TRADE WITH INCOMPLETE INFORMATION*

We argue that the incomplete information which the government has about domestic agents means that tariffs become an optimal instrument to protect them from import competition. Using a model where agents have private information about their endowments, we solve for the optimal government policy subject to the political constraint of ensuring Pareto gains from trade, the incentive compatibility constraint, and the government's budget constraint. We find that the optimal policy takes the form of nonlinear tariffs. These tariffs are never complete, in the sense of bringing prices back to their initial level, but always allow some individuals to be strictly better off than at the initial prices.     

A general characterization of interim efficient mechanisms for independent linear environments

We consider the class of Bayesian environments with independent types, and utility functions which are both quasi-linear in a private good and linear in a one-dimensional private-value type parameter. We call these independent linear environments. For these environments, we fully characterize interim efficient allocation rules which satisfy interim incentive compatibility and interim individual rationality constraints. We also prove that they correspond to decision rules based on virtual surplus maximization, together with the appropriate incentive taxes. We illustrate these techniques with applications to auction design and public good provision.     

Cardinal Bayesian allocation mechanisms without transfers

In allocating goods with no use of monetary transfers, random allocation mechanisms can be designed in order to elicit information on preference intensities. I study the nontransfer allocation of two ex-ante identical objects under Bayesian incentive compatibility, with symmetric agents and independent private valuations. I find the ex-ante utilitarian-optimal mechanism, in which the probability of receiving a specified object is used as “numeraire” to purchase probability units of the other object. I characterize this mechanism as an appropriate combination of lotteries, auctions and insurance. The latter element ensures that efficient auctions are feasible. If the problem is constrained to guarantee exactly one object per agent, then the optimal mechanism uses no information other than the agents? ordinal preferences.     

CREDIBILITY AND RENEGOTIATION OF OUTCOME FUNCTIONS IN IMPLEMENTATION*

Recent research has been motivated by the fact that the outcome function in implementation may not be “credible”. On the one hand, the players may try to renegotiate the final outcome, if there is another outcome which they prefer. On the other hand, the “social planner” may have an incentive not to implement the finaloutcome, if there is another outcome which he prefers. I show that in the exchange economy, the first problem is not serious. a planner with unlimited commitment power can design a “collusion-proof” mechanism, which is stable against all sorts of group devciation, including the ex post trade of goods among the agents. I will, However, argue tha hte second problem (the planner's commitment problem) can be very serious.     

The provision and pricing of excludable public goods: Ramsey–Boiteux pricing versus bundling

This paper studies the relation between Bayesian mechanism design and the Ramsey–Boiteux approach to the provision and pricing of excludable public goods. For a large economy with private information about individual preferences, the two approaches are shown to be equivalent if and only if, in addition to incentive compatibility and participation constraints, the final allocation of private-good consumption and admission tickets to public goods satisfies a condition of renegotiation proofness. Without this condition, a mechanism involving mixed bundling, i.e. combination tickets at a discount, is superior.     

PARETO EFFICIENCY AND WEIGHTED MAJORITY RULES

We consider the design of decision rules in an environment with two alternatives, independent private values and no monetary transfers. The utilitarian rule subject to incentive compatibility constraints is a weighted majority rule, where agents' weights correspond to expected gains given that their favorite alternative is chosen. It is shown that a rule is interim incentive efficient if and only if it is a weighted majority rule, and we characterize those weighted majority rules that are ex ante incentive efficient. We also discuss efficiency in the class of anonymous mechanisms and the stability of weighted majority rules.     

Regional economic growth disparities: A political economy perspective

Regional differences in economic growth have been observed within many countries. Our story emphasises three region-specific factors driving growth—capital, labour and political factors. Conditional on differences in production factor (i.e., labour and capital) variations across democratic states, what role do differences in underlying “political factors” across regions play in accounting for regional growth disparities? We build a political economy model of endogenous growth where regions have the same political institutions, but experience different (and estimable) distributions over voter political biases (i.e., our “political factors”). In our model, political factors affect regional productivity as a consequence of politico-economic equilibrium. We discipline our regional growth accounting exercises by calibrating/estimating each model to American state-level economic and political-survey data. We show that the capital factor is the predominant driving force behind growth in American states. Nevertheless, regional variations in distributions of voter's political biases also account a great deal for regional growth disparities. We also evaluate how much politics would have distorted agents' welfare and regional growth, were regional economies given the opportunity to live under an efficient social planner's allocation system; and, if agents were to live under the same democratic system but where all voters have equal voting influence.     

Property rights and long-run capital

Proprietary capital falling into the public domain inefficiently decreases capital accumulation. As a consequence, the market steady state consumption underperforms the planner's by 4.6%–9.1% in a neoclassical infinitely-lived agents economy with constant returns to scale and standard empirically supported parameters. The results extend robustly to an overlapping generations economy, for which the gap is 10.5% when similarly parametrized. A policy decentralizing, in the latter, the planner's steady state instead consists of (i) subsidizing the rental rate of private capital at its depreciation rate, and (ii) taxing households' negative net position between, on the one hand, firm and depreciated capital ownership, and on the other, borrowing. Under this policy, the necessary tax rate on households' negative net position is smaller the bigger the absolute value of the latter and, hence, the bigger the corresponding monetary real balances held by households.     

GRANTING AN EXIT OPTION TO CONDUCT AN AUDIT

We study a principal–agent relationship with auditing in which information from an audit is ‘soft’– by conducting an audit, the principal observes the agent's private information, but cannot obtain verifiable evidence on the information. Moreover, the principal's auditing effort is unverifiable in our model. Therefore, besides the agent's misreporting incentive, there is the principal's incentive to accuse the truthful agent even without auditing. If the principal's auditing effort is verifiable, granting no exit option to the agent is optimal although the principal can still accuse a truthful agent after the audit. We show that when the principal's auditing effort is unverifiable, granting an exit option to the agent and auditing are complementary. Without granting an exit option to the agent, no auditing is optimal, and the principal grants an exit option to conduct a sincere audit, which in turn mitigates the agent's misreporting incentive. Our analysis also reveals that, when the cost of auditing is sufficiently large, the principal conducts more sincere audits with a smaller amount of penalty.     

Public investment criteria under optimal nonlinear income taxation without commitment

In this study, we highlight that the incredibility of the government's commitment to a certain tax policy is a determinant of production inefficiency. We show that if the government cannot commit to a certain tax policy and if the types of taxpayers are completely separated, then the production efficiency theorem could be violated in an optimal solution. In this case, an incremental unit of public or private capital affects taxpayers' labor supply through wage rates. In a situation where public capital is more (less) complementary to labor than private capital, public investment tightens (relaxes) the incentive compatibility constraint more than private investment.     

General equilibrium in economies with uncertain delivery

We consider a general equilibrium model of trade ex ante with differential information in which agents choose plans of state-contingent lists of bundles. Being unable to verify that the state of nature is s and not t, an agent has to accept the delivery of any bundle in the list for delivery in state s or in the list for delivery in state t. Under the assumption that each state of nature can be verified by at least one agent, we establish existence of equilibrium and we show that the equilibrium allocation satisfies a notion of coalitional incentive compatibility.     

The informational effects of competition and collusion in legislative politics

We use a mechanism design approach to study the organization of interest groups in an informational model of lobbying. Interest groups influence the legislature only by communicating private information on their preferences and not by means of monetary transfers. Interest groups have private information on their ideal points in a one-dimensional policy space and may either compete or adopt more collusive behaviors. Optimal policies result from a trade-off between imposing rules which are non-responsive to the groups' preferences and flexibility that pleases groups better. Within a strong coalition, interest groups credibly share information which facilitates communication of their joint interests, helps screening by the legislature and induces flexible policies responsive to the groups' joint interests (an informativeness effect). Competing interest groups better transmit information on their individual preferences (a screening effect). The socially and privately optimal organization of lobbying favors competition between groups only when their preferences are not too congruent with those of the legislature. With more congruence, a strong coalition is preferred. Finally, within a weak coalition, interest groups must design incentive compatible collusive mechanisms to share information. Such weak coalitions are always inefficient.     

Perfect competition in asymmetric information economies: compatibility of efficiency and incentives

The idea of perfect competition for an economy with asymmetric information is formalized via an idiosyncratic signal process in which the private signals of almost every individual agent can influence only a negligible group of agents, and the individual agents’ relevant signals are essentially pairwise independent conditioned on the true states of nature. Thus, there is no incentive for an individual agent to manipulate her private information. The existence of incentive compatible, ex post Walrasian allocations is shown for such a perfectly competitive asymmetric information economy with or without “common values”. Consequently, the conflict between incentive compatibility and Pareto efficiency is resolved exactly, and its asymptotic version is derived for a sequence of large, but finite private information economies.     

Private Information: Similarity as Compatibility

We introduce a new topology on information which evaluates the similarity between information fields taking into account their compatibility, that is, the events that are commonly observed. With this “topology of common information”, the Walrasian expectations equilibrium (Radner 1968) and the private core (Yannelis 1991) are upper semicontinuous     

Non-implementation of rational expectations as a perfect Bayesian equilibrium

Summary. We point out several conceptual difficulties of the rational expectations equilibrium concept. In particular we show that such an equilibrium need not be incentive compatible and need not be implementable as a perfect Bayesian equilibrium . A comparison of rational expectations equilibria with the private core is also provided. We conclude that the private core is a more appropriate concept to capture the idea of contracts under asymmetric information.Received: 15 December 2003, Revised: 18 November 2004, JEL Classification Numbers: C71, C72, D5, D82. Correspondence to: Nicholas C. YannelisWe wish to thank Dr A. Hadjiprocopis for his invaluable help with the implementation of Latex in a Unix environment.     

Implementation in Economic Environments with Incomplete Information: The Use of Multi-Stage Games

This paper shows that, in economic environments with incomplete information, incentive compatibility and a preference reversal condition are sufficient for implementation in sequential equilibrium.Journal of Economic LiteratureClassification Numbers: C72, D71, D82.     

上市公司股权激励存在的问题与对策

2014年伊始,A股上市公司就掀起股权激励的热潮,截至3月份,已有益生股份、东华能源、鸿利光电等27家上市公司推出股权激励预案。在我国,股权激励在A股市场已经历了四个阶段,从最开始的萌芽期到股改时的冲动期,再到股权激励的相关办法相继出台后的规范期;随着中小企业板及创业板的长足发展及民营企业的大量上市,目前已经进入了快速发展期。随着股权激励计划在我国上市公司的普遍推行,大量问题涌现出来,严重影响实施股权激励的效用。     

Committing to transparency to resist corruption

This paper studies firms' incentives to commit to transparent behavior in a competitive procedure modeled as an asymmetric information beauty contest managed by a corrupt agent. In his evaluation of firms' offers for a public contract the agent has some discretion to favor a firm in exchange for a bribe. While unilateral commitment to transparency is never incentive compatible, under some circumstances a voluntary but conditional commitment mechanism can eliminate corruption. A low quality firm may prefer not to commit only when the agent's discretion is strong and the market's profitability is small. In that situation, the high quality firms commit when commitment decisions are kept secret, but some conditions on firms' beliefs are required when commitment decisions are publicly announced. A mechanism combining both conditionality and a reward (a transparent selection advantage that needs not be large) allows complete elimination of corruption.