Informational Size and Incentive Compatibility Without Negligible Aggregate Uncertainty

35 Pages Posted: 25 Jan 2002

See all articles by Andrew Postlewaite

Andrew Postlewaite

University of Pennsylvania - Department of Economics

Richard P. McLean

Rutgers University - Department of Economics

Date Written: November 16, 2001

Abstract

In McLean and Postlewaite (2001), we analyzed a general equilibrium model with asymetrically informed agents. We presented a notion of informational size and showed (among other things) that when agents' information as a whole resolved nearly all the uncertainty, the conflict between incentive compatibility and (ex post) efficiency can be made arbitrarily small if agents are sufficiently small informationally. This paper extends the analysis of the relationship between informational size and efficiency to the case in which there is nontrivial aggregate uncertainty, that is, when there is significant uncertainty about the world even when the information of all agents is known. We further show that the conflict between incentive compatibility and efficiency asymptotically vanishes when an economy is replicated.

Suggested Citation

Postlewaite, Andrew and McLean, Richard P., Informational Size and Incentive Compatibility Without Negligible Aggregate Uncertainty (November 16, 2001). Available at SSRN: https://ssrn.com/abstract=297921 or http://dx.doi.org/10.2139/ssrn.297921

Andrew Postlewaite (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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Richard P. McLean

Rutgers University - Department of Economics ( email )

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