Equilibrium theory with asymmetric information and with infinitely many commodities

The traditional deterministic general equilibrium theory with infinitely many commodities cannot cover economies with private information constraints on the consumption sets. We bring the level of asymmetric information equilibrium theory at par with that of the deterministic one. In particular, we establish results on equilibrium existence for exchange economies with asymmetric (differential) information and with an infinite dimensional commodity space. Our new equilibrium existence theorems include, as a special case, classical results, e.g. Bewley [Existence of equilibria in economies with infinitely many commodities, J. Econ. Theory 4 (1972) 514-540] or Mas-Colell [The price equilibrium existence problem in topological vector lattices, Econometrica 54 (1986) 1039-1053].     

On the informational efficiency of simple scoring rules

We study information aggregation in large elections. With two candidates, efficient information aggregation is possible (e.g., Feddersen and Pesendorfer [5], [6] and [7]). We show that this result does not extend to elections with more than two candidates. We study a class of simple scoring rules in voting games with Poisson population uncertainty and three candidates. No simple scoring rule aggregates information efficiently, even if preferences are dichotomous and a Condorcet winner always exists. We introduce a weaker criterion of informational efficiency that requires a voting rule to have at least one efficient equilibrium. Only approval voting satisfies this criterion.     

多层科层中的最优序贯授权与"一刀切"政策

沿袭Tirole(1986)的委托人一中间人一代理人科层结构,本文研究了当委托人不能直接管理代理人时的最优序贯授权问题。在该授权博弈中,委托人通过审慎设计中间人职权范围,影响其对代理入的授权行为,从而激励代理人更有效地提供和使用信息。我们发现,当下属之间利益偏差方向一致时,即中间人较委托入更愿意扩大代理人权限时,采用文献中常关注的“区间授权”(Holm—strom,1977)形式,委托人可以实现其直接向代理人授权时的最优结果。但是,如果下属间利益偏差方向相反,即中间人希望减小代理人权限时,“区间授权”将不再是最优。为了更好地影响控制中间人向代理人的次第授权行为,在最优序贯授权方案中委托人将移除部分中间选项。移除选项数目的多少取决于中间人的利益偏差程度。同授权与激励方面的文献不同,本文表明,即使在信息结构给定的条件下,移除中间项将作为科层中的控制工具,成为最优授权方案的一个特征。本文的发现从激励和授权角度对现行的一些法规执行实践中的“一刀切”政策(比如,“醉驾入刑”、大学招生录取等)提供了一些解释。     

Information-based trade

We study the possibility of trade for purely informational reasons. We depart from previous analyses (e.g. Grossman and Stiglitz (1980) [22] and Milgrom and Stokey (1982) [32]) by allowing the final payoff of the asset being traded to depend on an action taken by its eventual owner. We characterize conditions under which equilibria with trade exist.     

Veto-based delegation

In a principal-agent model with hidden information and no monetary transfers, I establish the veto-power principle: the principal can implement an optimal outcome through veto-based delegation with a properly chosen default decision. This result demonstrates the exact nature of commitment powers required by the principal: to design the default outcome and to ensure that she has almost no formal control over the agent's decisions.     

多层科层中的最优序贯授权与"一刀切"政策

沿袭Tirole(1986)的委托人-中间人-代理人科层结构,本文研究了当委托人不能直接管理代理人时的最优序贯授权问题。在该授权博弈中,委托人通过审慎设计中间人职权范围,影响其对代理人的授权行为,从而激励代理人更有效地提供和使用信息。我们发现,当下属之间利益偏差方向一致时,即中间人较委托人更愿意扩大代理人权限时,采用文献中常关注的"区间授权"(Holmstrom,1977)形式,委托人可以实现其直接向代理人授权时的最优结果。但是,如果下属间利益偏差方向相反,即中间人希望减小代理人权限时,"区间授权"将不再是最优。为了更好地影响控制中间人向代理人的次第授权行为,在最优序贯授权方案中委托人将移除部分中间选项。移除选项数目的多少取决于中间人的利益偏差程度。同授权与激励方面的文献不同,本文表明,即使在信息结构给定的条件下,移除中间项将作为科层中的控制工具,成为最优授权方案的一个特征。本文的发现从激励和授权角度对现行的一些法规执行实践中的"一刀切"政策(比如,"醉驾入刑"、大学招生录取等)提供了一些解释。     

Optimal delegation with multi-dimensional decisions

This paper investigates optimal mechanisms in a principal–agent framework with a two-dimensional decision space, quadratic payoffs and no monetary transfers. If the conflicts of interest between the principal and the agent are different on each dimension, then delegation is always strictly valuable. The principal can better extract information from the agent by using the spread between the two decisions as a costly screening device. Delegation sets no longer trade off pooling intervals and intervals of full discretion but instead take more complex shapes. We use advanced results from the calculus of variations to ensure existence of a solution and derive sufficient and necessary conditions for optimality. The optimal mechanism is continuous and deterministic. The agent?s informational rent, the average decision and its spread are strictly monotonic in the agent?s type. The comparison of the optimal mechanism with standard one-dimensional mechanisms shows how cooperation between different principals controlling various dimensions of the agent?s activities facilitates information revelation.     

Coalitional stability under perfect foresight

Summary. We analyze strategic social environments where coalitions can form through binding or nonbinding agreements and actions of a coalition may impose externalities upon the welfare of the rest of the players. We define a solution concept that (1) captures the perfect foresight of the players that has been overlooked in the literature (e.g., Harsanyi [10] and Chwe [6]) and (2) identifies the coalitions that are likely to form and the “stable” outcomes that will not be replaced by any coalition of rational (and hence farsighted) players. The proposed solution concept thereby offers a notion of agreements and coalition formation in complex social environments. Received: February 12, 1996; revised version: March 3, 1997     

Information structures in optimal auctions

A seller wishes to sell an object to one of multiple bidders. The valuations of the bidders are privately known. We consider the joint design problem in which the seller can decide the accuracy by which bidders learn their valuation and to whom to sell at what price. We establish that optimal information structures in an optimal auction exhibit a number of properties: (i) information structures can be represented by monotone partitions, (ii) the cardinality of each partition is finite, (iii) the partitions are asymmetric across agents. We show that an optimal information structure exists.     

Public Information Quality with Monopolistic Sellers

We show that in markets with asymmetric information, even if there is full agreement on the choice of optimal information quality, entrusting the choice of (unverifiable) public information quality to traders who benefit from such information leads to inefficiencies. However, delegation of information quality choice to an independent agent who is precluded from sharing in trading profits results in efficient implementation. This result provides a game-theoretic rationale for current institutional arrangements where a private organization that is independent of market traders, the Financial Accounting Standards Board, determines the standards for public disclosures.Journal of Economic LiteratureClassification Numbers: D41, D42, D82.     

Reallocation of an infinitely divisible good

Summary. We consider the problem of reallocating the total initial endowments of an infinitely divisible commodity among agents with single-peaked preferences. With the uniform reallocation rule we propose a solution which satisfies many appealing properties, describing the effect of population and endowment variations on the outcome. The central properties which are studied in this context are population monotonicity, bilateral consistency, (endowment) monotonicity and (endowment) strategy-proofness. Furthermore, the uniform reallocation rule is Pareto optimal and satisfies several equity conditions, e.g., equal-treatment and envy-freeness. We study the trade-off between properties concerning variation and properties concerning equity. Furthermore, we provide several characterizations of the uniform reallocation rule based on these properties. Received: August 29, 1995; revised version June 26, 1996     

How delegation improves commitment

McCallum (1995, American Economic Review Papers and Proceedings 85 (2), 207-211) conjectures that delegation merely relocates the commitment problem but does not solve it. This holds if optimal ex-ante policies do not change if additional information becomes available. However, with a flexibility-credibility trade-off delegation improves credibility.     

Optimal collusion-proof auctions

We study an optimal collusion-proof auction in an environment where subsets of bidders may collude not just on their bids but also on their participation. Despite their ability to collude on participation, informational asymmetry facing the potential colluders can be exploited significantly to weaken their collusive power. The second-best auction — i.e., the optimal auction in a collusion-free environment — can be made collusion-proof, if at least one bidder is not collusive, or there are multiple bidding cartels, or the second-best outcome involves a non-trivial probability of the object not being sold. Regardless, optimal collusion-proof auction prescribes non-trivial exclusion of collusive bidders, i.e., a refusal to sell to any collusive bidder with positive probability.     

On two competing mechanisms for priority-based allocation problems

We consider the priority-based allocation problem: there is a set of indivisible objects with multiple supplies (e.g., schools with seats) and a set of agents (e.g., students) with priorities over objects (e.g., proximity of residence area). We study two well-known and competing mechanisms. The agent-optimal stable mechanism (AOSM) allots objects via the deferred acceptance algorithm. The top trading cycles mechanism (TTCM) allots objects via Gale's top trading cycles algorithm. We show that the two mechanisms are equivalent, or TTCM is fair (i.e., respects agents’ priorities), or resource monotonic, or population monotonic, if and only if the priority structure is acyclic. Furthermore, if AOSM fails to be efficient (consistent) for a problem, TTCM also fails to be fair (consistent) for it. However, the converse is not necessarily true.     

Innovation management in organizations

This paper poses the question of how a firm should optimally choose both its organization and its compensation in the pursuit of innovation. One key result is that incentive pay arises as a robust instrument of innovation management both with and without delegation, although in the present model its primary purpose is not to elicit more effort for the creation of new ideas, but to ensure that new ideas are implemented if and only if this is efficient. While without delegation, the firm may “underinvest” in innovation, with delegation the opposite bias may arise as new ideas may be implemented too often (“overinvestment”). The optimal organizational choice trades off these two biases.     

Mutual supervision in preshipment inspection programs

Preshipment inspection (PSI) programmes are implemented in many developing countries to assist governments in the collection of revenue at their borders. These programs consist of the delegation of the inspection of imports to a private firm. To study these PSI programmes, we develop a hierarchical agency model in which the government authority can rely on two supervisors, namely the private inspection firm and the customs administration, to control importers' declarations. The government's optimal contract is fully characterized. We devote some attention to the inspection policy and its comparative statics properties. In particular, we identify the situations in which PSI programmes are revenue enhancing. We also discuss the reconciliation policy, i.e. what to do in case of conflicting inspection reports by the inspection firm and the customs administration. In the optimal mechanism, mutual supervision between the inspection firm and the customs administration is used to provide adequate incentives to all parties.     

Tying the politicians’ hands: The optimal limits to representative democracy

The citizen candidate models of democracy assume that politicians have their own preferences that are not fully revealed at the time of elections. We study the optimal delegation problem which arises between the median voter (the writer of the constitution) and the (future) incumbent politician under the assumption that not only the state of the world but also the politician's type (preferred policy) are the policy‐maker's private information. We show that it is optimal to tie the hands of the politician by imposing both a policy floor and a policy cap and delegating him/her the policy choice only in between the cap and the floor. The delegation interval is shown to be the smaller the greater is the uncertainty about the politician's type. These results are also applicable to settings outside the specific problem that our model addresses.     

Lobbying Bureaucrats*

We study how interest group lobbying of the bureaucracy affects policy outcomes and how it changes the legislature's willingness to delegate decision‐making authority to the bureaucracy. We extend the standard model of delegation to account for interest group influence during the implementation stage of policy. We analyze how the decision to delegate changes when the bureaucratic agent is subject to external influence. The optimal degree of delegation as well as the extent to which interest groups influence policy outcomes differ depending on whether the system of government is characterized by unified or divided control. The result is a comparative theory of bureaucratic lobbying.     

Optimal selling strategies when buyers may have hard information

Consider a revenue-maximizing seller who can sell an object to one of n potential buyers. Each buyer either has hard information about his valuation (i.e., evidence that cannot be forged) or is ignorant. The optimal mechanism is characterized. It turns out that more ignorance can increase the expected total surplus. Even when the buyers are ex ante symmetric, the object may be sold to a buyer who does not have the largest willingness-to-pay. Nevertheless, an additional buyer increases the expected total surplus in the symmetric case, whereas more competition can be harmful if there are ex ante asymmetries.