Abstract
We consider the efficiency properties of exchange economies where privately informed traders behave strategically. Specifically, a competitive mechanism is any mapping of traders' reports about their types to an equilibrium price vector and allocation of the reported economy. In our model, some traders may have non-vanishing impact on prices and allocations regardless of the size of the economy. Although truthful reporting by all traders cannot be achieved, we show that, given any desired level of approximation, there is over(N, -) such that any Bayesian-Nash equilibrium of any competitive mechanism of any private information economy with over(N, -) or more traders leads, with high probability, to prices and allocations that are close to a competitive equilibrium of the true economy. In particular, allocations are approximately efficient. A key assumption is that there is small probability that traders behave non-strategically.
Original language | English (US) |
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Pages (from-to) | 383-403 |
Number of pages | 21 |
Journal | Journal of Economic Theory |
Volume | 137 |
Issue number | 1 |
DOIs | |
State | Published - Nov 2007 |
Funding
We thank seminar participants at the University of Chicago, Rutgers, Northwestern, and Washington Universities, and participants at the Murat Sertel memorial conference. The second author is grateful for the support of the Technion Fund for Promotion of Research, the Technion V.P.R. Fund, and the William Davidson Fund. We are also grateful to Nenad Kos for proof-reading the manuscript.
Keywords
- Competitive mechanisms
- Efficiency
- Implementation
ASJC Scopus subject areas
- Economics and Econometrics