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Incomplete Information, Incentive Compatibility, and the Core

Rajiv Vohra

Journal of Economic Theory 86, 123-147 (1999)

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Abstract

We consider an exchange economy in which agents possess private information at the time of engaging in state contingent contracts. While communication of private information is permitted, the true information state is not verifiable. The enforcement of contracts is, therefore, limited by incentive compatibility constraints. We formalize a notion of the core for such an economy. Our analysis can be viewed as an attempt to incorporate incentive compatibility in the coarse core of R. Wilson (1978, Econometrica 46, 807-816),  or as an attempt to introduce coalitional contracts in the notion of incentive efficiency of B. Holmstrom and R. Myerson (1983, Econometrica 51, 1799-1819). While there are some special cases in which the incentive compatible core is non-empty, our main result shows that this is not generally true. Journal of Economic Literature Classification Numbers: C71, C72, D51

Journal of Economic Theory, v 86, n 1, May 1999, p123-147 (ID jeth.1999.2512)
Copyright © 1999 Academic Press

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