TY - JOUR
T1 - The efficiency of competitive mechanisms under private information
AU - Al-Najjar, Nabil I.
AU - Smorodinsky, Rann
N1 - Funding Information:
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.
PY - 2007/11
Y1 - 2007/11
N2 - 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.
AB - 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.
KW - Competitive mechanisms
KW - Efficiency
KW - Implementation
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U2 - 10.1016/j.jet.2006.12.006
DO - 10.1016/j.jet.2006.12.006
M3 - Article
AN - SCOPUS:36048944017
SN - 0022-0531
VL - 137
SP - 383
EP - 403
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 1
ER -