Informational size and incentive compatibility with aggregate uncertainty |
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Authors: | Richard P McLean Andrew Postlewaite |
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Institution: | a Department of Economics, Rutgers University, New Brunswick, NJ 08901, USA;b Department of Economics, University of Pennsylvania, Philadelphia, PA 19104, USA |
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Abstract: | In McLean and Postlewaite (Econometrica 56, 1992, p. 2421), we analyzed pure exchange economies with asymmetrically informed agents. We defined a notion of informational size and showed that, when the aggregate information of all agents resolves nearly all the uncertainty regarding the state of nature, the conflict between incentive compatibility and (ex post) efficiency can be made small if agents have sufficiently small informational size. This paper investigates the relationship between informational size and efficiency for the case in which nontrivial aggregate uncertainty is present, i.e., when significant uncertainty about the world persists even when the information of all agents is known. |
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Keywords: | JEL classification codes: D82 |
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