- “Symposium on Incentive Compatibility: Introduction,” Review of Economic Studies 46 (1979), 181–184.
- (with Partha S. Dasgupta and Eric S. Maskin) “The Implementation of Social Choice Rules: Some General Results on Incentive Compatibility,” Review of Economic Studies (Symposium on Incentive Compatibility), 46 (1979), 185–216.
A social choice rule f is a correspondence which associates with each possible configuration ϕ of individuals’ characteristics and each feasible set of alternatives A a choice set f(ϕ, A) ⊂ A, interpreted as the welfare optima of A. f is said to be implemented by a game form g if the equilibrium outcome set of g (with respect to the selected solution concept) is nonempty and contained in f(ϕ, A) ⊂ A for all ϕ and A. The general question of the implementability of social choice rules for four well-known solution concepts: dominant strategy equilibrium, Bayesian equilibrium, maximin equilibrium, and Nash equilibrium is studied in detail in this paper. JSTOR link for paper
- “Straightforward Individual Incentive Compatibility in Large Economies,” Review of Economic Studies (Symposium on Incentive Compatibility), 46 (1979), 263–282.
It is intuitively obvious and generally known that the competitive resource allocation mechanism is, in a private economy with a nonatomic measure space of agents, individually incentive compatible. This paper characterizes the entire class of individually incentive compatible mechanisms in such economies as those which can be decentralized by allowing each agent to choose his own allocation from a constraint set that is independent of his own characteristics. Conditions are given for the competitive mechanism, without lump-sum transfers, to be the only Pareto satisfactory incentive compatible mechanism. A particular kind of “fair” Lindahl equilibrium has parallel properties in a corresponding economy with public goods.
JSTOR link for paper
- (with Partha S. Dasgupta and Eric S. Maskin) “On Imperfect Information and Optimal Pollution Control,” Review of Economic Studies 47 (1980), 857–860. JSTOR link for paper
- (with Partha S. Dasgupta) “Fully Progressive Taxation,” Journal of Public Economics 13 (1980), 141–154.
In the Mirrlees model of optimal income taxation, each worker’s true ability can be inferred from his income and the hours he works. Yet, a fully optimal ability tax is incentive incompatible. We show that, if both consumption and leisure are normal goods in each worker’s common utility function, the optimal incentive compatible allocation is the maximin optimum, with each worker enjoying the same utility level. This allocation can be implemented by a tax on ability as revealed by the most skilled kind of labor the worker offers, or by a tax on his average productivity. ScienceDirect link
- Discussion of E.S. Maskin, “First-Best Taxation,” in D. Collard, R. Lecomber and M. Slater (eds.) Income Distribution: The Limits to Redistribution (Bristol: Scientechnica, 1980), pp. 22–28.
- “Markets as Constraints: Multilateral Incentive Compatibility in Continuum Economies,” Review of Economic Studies 54 (1987), 399–412; extended abstract in P. Kleinschmidt and F.J. Radermacher (eds.), Proceedings of the SOR Conference, Passau, 1987 pp. 57–8.
A symmetric allocation in a continuum is “multilaterally incentive compatible” if no finite coalition of privately informed agents can manipulate it by combining deception with hidden trades of exchangeable goods. Sufficient conditions for multilateral incentive compatibility are that all agents face the same linear prices for exchangeable goods, and that indistinguishable agents face identical budget sets. The same conditions are necessary under assumptions which extend those under which the second efficiency theorem of welfare economics holds in a continuum economy. Markets for exchangeable goods emerge as binding constraints on the set of Pareto efficient allocations with private information. JSTOR link for paper
Discussion of P. Champsaur, “Information, Incentives, and General Equilibrium,” in B. Cornet and H. Tulkens (eds.) Contributions to Operations Research and Economics: The Twentieth Anniversary of CORE (Cambridge, Mass.: M.I.T. Press, 1989), ch. 2, pp. 50–58.
“Incentives and Allocation Mechanisms,” in R. van der Ploeg (ed.) Advanced Lectures in Quantitative Economics (New York: Academic Press, 1990), ch. 6, pp. 213–248.
When individuals are privately informed of their own abilities and tastes, many first-best Pareto efficient allocations become infeasible. True feasibility requires an allocation to emerge from a game form with incomplete information. In English auctions when bidders know their willingness to pay, they have dominant strategies and the equilibrium outcome depends only on their willingness to pay. But in Dutch auctions bidders’ beliefs about each other are also important. A generalized version of the “revelation principle” is demonstrated. Random dominant strategy mechanisms for simple finite economies are characterized by means of simple linear inequalities.
“On the Impossibility of Perfect Capital Markets,” in P. Dasgupta, D. Gale, O. Hart, and E. Maskin (eds.), Economic Analysis of Markets and Games: Essays in Honor of Frank Hahn (Cambridge, Mass.: M.I.T. Press, 1992), pp. 527–560.
Perfect capital markets require linear budget constraints, without credit rationing creating any tight borrowing constraints before the end of agents’ economic lifetimes. Yet lifetime linear budget constraints are totally unenforceable. This paper considers what allocations can be enforced through monitoring in a simple two period economy when agents have private information regarding their endowments. Then default may not become apparent soon enough for any economic penalty to be an effective deterrent. Instead, borrowing constraints must be imposed to control fraud (moral hazard). Adverse selection often implies that some borrowing constraints must bind, creating inevitable capital market imperfections.
PDF file of preprint
“A Revelation Principle for (Boundedly) Bayesian Rationalizable Strategies,” in R.P. Gilles and P.H.M. Ruys (eds.), Imperfections and Behavior in Economic Organizations (Boston: Kluwer Academic Publishers, 1994) ch. 3, pp. 39–70.
The revelation principle is reconsidered in the light of recent work questioning its general applicability, as well as other work on the Bayesian foundations of game theory. Implementation in rationalizable strategies is considered. A generalized version of the revelation principle is proposed recognizing that, unless agents all have dominant strategies, the outcome of any allocation mechanism depends not only upon agents’ “intrinsic” types, but also upon their beliefs about other agents and their strategic behaviour. This generalization applies even if agents are “boundedly rational” in the sense of being Bayesian rational only with respect to bounded models of the game form. PDF file of preprint
(with José Córdoba) “Asymptotically Walrasian Strategy-Proof Exchange,” Mathematical Social Sciences 36 (1998), 185–212.
In smooth exchange economies with a continuum of agents, any Walrasian mechanism is Pareto efficient, individually rational, anonymous, and strategy-proof. Barberà and Jackson’s recent results imply that no such efficient mechanism is the limit of resource-balanced, individually rational, anonymous and non-bossy strategy-proof allocation mechanisms for an expanding sequence of finite economies. For a broad class of smooth random exchange economies, relaxing anonymity and non-bossiness admits mechanisms which, as the economy becomes infinitely large, are asymptotically Walrasian for all except one “balancing” agent, while being manipulable with generically vanishing probability. Also considered are some extensions to non-Walrasian mechanisms. PDF file of preprint
“Multilaterally Strategy-Proof Mechanisms in Random Aumann-Hildenbrand Macroeconomies,” in M. Wooders (ed.) Topics in Game Theory and Mathematical Economics: Essays in Honor of Robert J. Aumann (Providence, RI: American Mathematical Society), pp. 171–187.
By definition, multilaterally strategy-proof mechanisms are immune to manipulation not only by individuals misrepresenting their preferences, but also by finite coalitions exchanging tradeable goods on the side. Continuum economies are defined in which both agents’ identifiers and their privately known characteristics are joint i.i.d. random variables. For such economies, conditions are given for multilateral strategy-proofness to imply decentralization by a budget constraint with linear prices for tradeable goods and lump-sum transfers independent of individual characteristics. Also, adapting Aumann’s [1964a] key proof avoids using Lyapunov’s theorem or its corollary, Richter’s theorem on integrating a correspondence w.r.t. a non-atomic measure. PDF file of preprint
“Incomplete Resource Allocation Mechanisms,” Stanford University, Institute of Mathematical Studies in the Social Sciences, Economics Technical Report No. 361 (1981).
“Perfected Option Markets in Economies with Adverse Selection,” European University Institute, Working Paper 89/426; presented at the Econometric Society European Meeting, Munich, 1989.
In economies with adverse selection, Arrow–Debreu contingent commodity contracts must satisfy incentive constraints. Following Prescott and Townsend (in Econometrica 1984), an Arrow–Debreu economy is considered with a continuum of agents whose feasible sets are artificially restricted by imposing these incentive constraints. Equilibria in such an economy must be incentive-constrained Pareto efficient. It is shown that deterministic equilibria of this kind are achievable through “perfected” option markets with non-linear pricing in a way which makes the incentive constraints self-enforcing. Rothschild, Stiglitz and others have shown, however, that these equilibria must be vulnerable to free entry by profit seeking firms. PDF file