Econometrica: Nov 2002, Volume 70, Issue 6

Informational Size and Incentive Compatibility

https://doi.org/10.1111/j.1468-0262.2002.00444.x
p. 2421-2453

Richard McLean, Andrew Postlewaite

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.

Log In To View Full Content

Back