stopping agents from cheating abstract when a principal hires two or more agents to work in a correlated environment each agent s reward will depend on the other s performance unfortunately with just the usual optimal incentive constrained contracts being offered the agents strictly prefer to play equilibrium strategies other than those desired by the principal they cheat however the principal can use a more subtle contractual mechanism to stop them from cheating at no extra cost this mechanism uses one agent to police the other and exploits certain properties of the optimal contracts

the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

mechanism design with possibilistic beliefs abstract we study mechanism design in non bayesian settings of incomplete information when the designer has no information about the players and the players have arbitrary heterogeneous first order and possibilistic beliefs about their opponents payoff types using such beliefs in auctions of a single good we define a revenue benchmark at least as high as the second highest valuation and sometimes much higher prove that it is not meaningfully achievable via traditional notions of implementation and prove that it is achievable via a notion of implementation based only on mutual belief of rationality

rotating and accumulating savings and credit associations a development perspective abstract financial self help groups in low income countries consist of two basic types rotating and accumulating savings and credit associations or roscas and ascras in the ascra funds are not immediately withdrawn but are left to grow for loan making comparing the two groups the author finds similarities and differences efforts to rectify the rosca s shortcomings have prompted many innovations and given birth to a hybrid preserving the best of both types in constant adaptation to changing environments

simple mechanisms and preferences for honesty we consider full implementation in complete information environments when agents have an arbitrarily small preference for honesty we offer a condition called separable punishment and show that when it holds and there are at least two agents any social choice function can be implemented by a simple mechanism in two rounds of iterated deletion of strictly dominated strategies

strategy proof exchange we consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences in such a setting standard allocation rules such as walrasian equilibria or rational expectations equilibria are not compatible with individual incentives we characterize the set of allocation rules which are incentive compatible or in other words the set of strategy proof social choice functions social choice functions which are strategy proof are those which can be obtained from trading according to a finite number of pre specified proportions the number of proportions which can be accommodated is proportional to the number of agents such rules are necessarily inefficient even in the limit as the economy grows

endogenous market structures in international trade natura facit saltum abstract almost all of the large literature on international trade with imperfect competition assumes exogenous market structures the purpose of this paper is to develop a simple model that generates alternative market structures as nash equilibria for different parameterizations of the basic model equilibrium market structure is a function of the underlying technology familiar configurations such as a duopoly competing in exports or a single multinational producing in both markets arise as special cases small tax policy changes can produce large welfare effects as the equilibrium market structure shifts implying discontinuous jumps in prices quantities and profits

sustainability impacts of car road pricing a computable general equilibrium analysis for austria abstract nationwide car road pricing schemes are discussed across europe we analyse the impacts of such schemes with respect to environmental economic and social indicators of sustainability also quantifying the trade offs among these three dimensions under different charging principles and revenue recycling options in our analysis we employ a computable general equilibrium cge approach develop a modelling structure for private transport and provide detailed empirical analysis for the case of austria regarding the social dimension it has often been argued that poorer households and commuters would have to bear a disproportionate share of the road pricing burden we find the contrary i e a stronger negative policy impact on richer households and on a small group of intensive car users the choice of revenue recycling is able to ameliorate the negative social and economic effects of road pricing without reversing the desired positive environmental effects for political feasibility questions of distributional impacts are most urgent and therefore we address them systematically within a quantitative framework

approximately competitive equilibria in large finite economies abstract we consider exchange economies where each consumer may report or act according to any demand function provided that there exist situations that the consumer finds plausible in which the reported demand performs at least as well as the true demand we identify conditions under which as the size of the economy increases all the market clearing prices and allocations of the reported economy approximate the competitive equilibria of the true economy journal of economic literature classification numbers d51 d82

mechanism design with incomplete information a solution to the implementation problem the main result of this paper is that the multiple equilibrium problem in mechanism design can be avoided in private value models if agents do not use weakly dominated strategies in equilibrium we show that in such settings any incentive compatible allocation can be made the unique equilibrium outcome to a mechanism we derive a general necessary condition for unique implementation which implies that the positive result for private value models applies with considerably less generality to common value settings and to situations in which an agent s information does not index the agent s preferences

implementation in differential information economies abstract we consider the problem of implementation of social choice correspondences in differential information economies we provide necessary conditions for implementation and slightly stronger conditions which are sufficient to guarantee implementation

informational smallness and the scope for limiting information rents abstract for an incomplete information model of public good provision with interim participation constraints we show that efficient outcomes can be approximated with approximately full surplus extraction when there are many agents and each agent is informationally small the result holds even if agents payoffs cannot be unambiguously inferred from their beliefs the contrary result of neeman z neeman the relevance of private information in mechanism design j econ theory 117 2004 55 77 rests on an implicit uniformity requirement that is incompatible with the notion that agents are informationally small because there are many other agents who have information about them

financial fragility and over the counter markets abstract this paper studies the interaction between financial fragility and over the counter otc markets i model the financial sector as a large number of investors divided into different groups which i interpret as financial institutions and a large number of dealers financial institutions and dealers trade assets in an otc market a la duffie et al 2005 and lagos and rocheteau 2009 investors receive privately observed preference shocks and financial institutions use the balanced team mechanism proposed by athey and segal 2013 to implement an efficient risk sharing arrangement among their investors when the market is liquid in the sense that search and bargaining are small frictions i show that the economy is likely to have a unique equilibrium and therefore is not fragile when these frictions are severe a run equilibrium exists investors announce low valuation of assets because they believe everyone else in their financial institution is doing the same conditional on bank runs existing the welfare impact of the search friction is ambiguous during runs trade is inefficient and as a result a friction that reduces trade during runs has the potential to improve welfare this result is in sharp contrast with the existing literature which suggests that search friction has a negative impact on welfare

on the failure of core convergence in economies with asymmetric information in interim economies with asymmetric information we show that the coarse core of wilson 1978 does not converge to price equilibrium allocations as the economy is replicated this failure of core convergence is a basic consequence of asymmetric information and extends to any reasonable notion of either interim core or price equilibrium

self fulfilling mechanisms and rational expectations we introduce a class of communication equilibria which we call self fulfilling mechanisms and show that they provide a game theoretic foundation to rational expectations equilibria letebe an exchange economy with differential information we associate a strategic market game e withe we prove that the allocations achieved through a self fulfilling mechanism in e coincide with the rational expectations equilibrium allocations ine in order to understand how self fulfilment can be realized in a dynamic framework we investigate the relationship between self fulfilling mechanisms in e and nash equilibria of thet stage repeated game t e journal of economic literatureclassification numbers d82 c72

continuous and feasible implementation of rational expectations lindahl allocations abstract in this paper we consider bayesian implementation of rational expectations lindahl allocations for economic environments with public goods when agents are incompletely informed about environments we construct a continuous and feasible mechanism whose bayesian equilibrium allocations coincide with rational expectations lindahl allocations we not only allow the types of individuals to be unknown but also allow both the preferences and the initial endowments to be unknown to the designer in addition we allow some types of boundary equilibrium allocations and a continuous information structure journal of economic literatureclassification number c72 d71 d82 h41

efficiency and mechanisms with no regret can we always design a game form so that all its bayesian equilibrium outcomes are either interim individually rational efficient or interim envy free efficient in asymmetric information economies we show that the answer is no given that such games exist in complete information economies can this gap be filled by games that leak information endogenously without enlarging the equilibrium set we adopt two approaches first we introduce a theory of cheap play as a natural model of such games the second is an extreme approach that adopts an ex post viewpoint neither yields a possibility result information leakage does not recover efficiency this paper addresses the following question in any domain of asymmetric information economies is it always possible to design a game form so that all its equilibrium outcomes are either interim individually rational efficient or interim fair envy free efficient our first result is that with bayesian equilibrium as the solution concept we can never design such a game form in a wide domain of economies the impossibility result persists even if there were strong restrictions on the information structure guaranteeing incentive compatibility of all allocation rules from the nash implementation literature maskin 1977 hurwicz et al 1984 we know that such games exist in complete information economies our first result indicates the cost in terms of social welfare imposed on society by the presence of information asymmetry this raises a natural question can the gap between the positive results under complete information and the negative ones under incomplete information be bridged by devising game forms that leak information endogenously in an equilibrium of such a game the players optimality calculations are conditioned on the newly acquired information superficially it appears that such games may yield a solution to the problem of nonexistence of efficient mechanisms information leakage is a mixed blessing since typically it would require pre play communication which tends to enlarge the set of equilibria our negative findings using bayesian equilibrium were primarily due to the presence of too many equilibria in every conceivable game form clearly we need a game form that

implementation in economic environments with incomplete information the use of multi stage games abstract this paper shows that in economic environments with incomplete information incentive compatibility and a preference reversal condition are sufficient for implementation in sequential equilibrium journal of economic literature classification numbers c72 d71 d82

how well have social economy financial institutions performed during the crisis period exploring financial and social efficiency in spanish credit unions as social economy financial institutions credit unions have traditionally been considered less efficient than traditional banking entities however like banks and savings banks they have to be as efficient and competitive as possible to survive in today s business environment especially at times of crisis to date there have been very few studies on their efficiency and practically none for the crisis period moreover almost all the existing studies assess only financial efficiency without considering their social function this study examines the levels of both financial and social efficiency in spanish credit unions as well as their main determinants during the recent crisis we apply the two stage double bootstrap data envelopment analysis dea methodology based on panel data corresponding to all the credit unions active in spain between 2008 and 2013 the empirical results indicate that financial and social efficiency achieved an acceptable level although on average the former was slightly greater than the latter we also find that both age and merger and acquisition activity were positively influential on the financial efficiency of credit unions but had a significant negative effect on their social efficiency moreover the regional location of such entities and the financial crisis were also crucial determinants of both types of efficiency our findings are therefore useful for all the stakeholders of credit unions to know if these entities have been efficient according to a double bottom line accounting in the crisis period and hence to maintain successful social management that is compatible with satisfactory financial efficiency

secure implementation experiments do strategy proof mechanisms really work strategy proofness requiring that truth telling is a dominant strategy is a standard concept used in social choice theory saijo et al 2003 argue that this concept has serious drawbacks in particular announcing one s true preference may not be a unique dominant strategy and almost all strategy proof mechanisms have a continuum of nash equilibria for only a subset of strategy proof mechanisms do the set of nash equilibria and the set of dominant strategy equilibria coincide for example this double coincidence occurs in the groves mechanism when preferences are single peaked we report experiments using two strategy proof mechanisms where one of them has a large number of nash equilibria but the other has a unique nash equilibrium we found clear differences in the rate of dominant strategy play between the two

the foreign trade and sectoral impact of truck road pricing for cross border trade truck road pricing is on the brink of beingintroduced in a number of european countries the experience gained from switzerland thefirst country worldwide to implement such adistant dependent pricing scheme has provedinvaluable nevertheless significant questionsstill remain the present paper attempts toprovide some clarity by analysing the welfareand sectoral impact resulting from theintroduction of truck road pricing with respectto foreign trade it is shown that this impactcan be separated into four effects the pureterms of trade effect the tax revenue effect the transit tax revenue effect and the resourcegain effect resources set free by a reductionin transport activity a cge simulation ofeach of these effects identifies theirquantitative implications out of the foureffects the pure terms of trade effect turnsout to dominate at both the sectoral andaggregate level it triggers a trade inducedwelfare loss the tax revenue effect and lessso the transit revenue effect mitigate thisloss for a full road transport costinternalization a trade induced welfare loss isquantified for austria at 1 3 sensitivity ofthis and other aggregate variables is high withrespect to household reaction to transport taxrevenue refunding the trade induced welfareloss of variable size as explored in thisarticle counterbalances a fraction of thewelfare gain due to internalization

the efficiency of competitive mechanisms under private information 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 n such that any bayesian nash equilibrium of any competitive mechanism of any private information economy with 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

roscas as financial agreements to cope with self control problems abstract we consider a model in which people with limited self control can sign binding financial agreements among themselves thereby forming coalitions we show that these financial agreements may help them to alleviate their self control problems we then demonstrate that there exists a stable structure of coalitions in which people form rotating savings and credit associations roscas we therefore provide a behavioral rationale for one of the most prevalent and puzzling financial institutions in developing countries finally we derive and discuss some empirical predictions

gender biases in bank lending lessons from microcredit in france the evidence on gender discrimination in lending remains controversial to capture gender biases in banks loan allocations we observe the impact on the applicants of a microfinance institution mfi and exploit the natural experiment of a regulatory change imposing a strict eur 10 000 loan ceiling on microcredit descriptive statistics indicate that the presence of the ceiling is associated both with bank mfi co financing and with harsher treatment of female borrowers to investigate causal links we develop an econometric approach that addresses the concerns of selection biases multicollinearity and endogeneity our empirical findings suggest that the change in the mfi s gender related attitude was triggered by banks through co financing hence we speculate that co financing pushes ceiling constrained mfis to import whatever biases in loan granting that the banks are prone to overall this paper stresses that apparently benign regulations such as loan ceilings can significantly harm the women s empowerment efforts made by mfis

feasible bayesian implementation with state dependent feasible sets this paper considers feasible bayesian implementation for an environment with state dependent feasible sets we assume no externality in individual feasibility constraint sets and no exaggeration on the part of agents but allow for flexible information structures bayesian incentive compatibility closure and bayesian monotonicity are found to be necessary and sufficient for feasible bayesian implementation this result is applied to an exchange economy where agents have fixed preferences but uncertain initial endowments and complete information a condition called the endowment condition which is weaker than individual rationality is identified as necessary and sufficient for feasible nash implementation journal of economic literatureclassification numbers d70 d71 d74 d82

the growth of us credit unions abstract the growth of us credit unions during the 1990s is investigated empirically using univariate and multivariate cross sectional and panel estimation techniques univariate tests of the law of proportionate effect suggest that in general large credit unions grew faster than their smaller counterparts on average credit unions with above average growth in one period tended to experience below average growth in the next smaller credit unions tended to have more variable growth than large ones while credit unions share a common co operative philosophy they differ in terms of age profile scope for membership growth charter type and financial structure and performance in estimations of a multivariate growth model most of these characteristics are found to have a significant influence on the size growth relationship while large state chartered credit unions grew faster than their smaller counterparts the reverse was true for federally chartered credit unions in general if larger credit unions grew faster than smaller ones they tended to do so for specific reasons because their charters were less restrictive because they were more efficient or because they had a financial structure that was more conducive to growth therefore credit union growth was not random but highly systematic

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

social multi criteria evaluation methodological foundations and operational consequences in order to address contemporary issues economics and decision sciences need to expand their empirical relevance by introducing more and more realistic thus more complex assumptions in their models one of the most interesting research directions in the field of public economics is the attempt to introduce political constraints interest groups and collusion effects explicitly j j laffont incentives and political economy 2000 the main argument developed here is the proposal of the concept of social multi criteria evaluation smce as a possible useful framework for the application of social choice to the difficult policy problems of our millennium where as stated by funtowicz and ravetz facts are uncertain values in dispute stakes high and decisions urgent this paper starts from the following main questions 1 why social multi criteria evaluation 2 how should such an approach be developed the foundations of smce are set up by referring to concepts from complex system theory and philosophy such as reflexive complexity post normal science and incommensurability to give some operational guidelines on the application of smce basic questions to be answered are 1 how is it possible to deal with technical incommensurability 2 how can we deal with the issue of social incommensurability to answer these questions using theoretical considerations and lessons learned from real world case studies is the main objective of the present article

feasible and continuous implementation there has been a great deal of research in recent years investigating the question of whether or not there exist institutions game forms for which the set of equilibria will coincide with the set of walrasian equilibria in this paper we show the existence of a game form that is feasible both for equilibrium and disequilibrium strategies continuous and for which the set of nash equilibria coincides with the set of constrained walrasian equilibria for all pure exchange economies the game form allows agents to behave strategically both with respect to their preferences and their initial endowments

private information in large economies this paper examines the effect of private information in large economies we show that in a model with stochastic information structures the restrictions imposed on allocations by the presence of private information disappear in large economies we also show that for a large class of direct mechanisms the incentive for any agent to falsely report private information goes to zero as the number of agents becomes large these results provide an informational smallness analog to existing quantity smallness limiting results in the literature

multiple criteria decision making combined with finance a categorized bibliographic study abstract this paper provides a categorized bibliography on the application of the techniques of multiple criteria decision making mcdm to problems and issues in finance a total of 265 references have been compiled and classified according to the methodological approaches of goal programming multiple objective programming the analytic hierarchy process etc and to the application areas of capital budgeting working capital management portfolio analysis etc the bibliography provides an overview of the literature on mcdm combined with finance shows how contributions to the area have come from all over the world facilitates access to the entirety of this heretofore fragmented literature and underscores the often multiple criterion nature of many problems in finance

transport access and economic growth transport and gross domestic product have grown at roughly a one to one relationship in the past many decision makers consider the supply of transport infrastructure an important ingredient in fostering productivity and economic growth some even consider it a prerequisite this article analyses the various causal links from transport to economic growth and puts their empirical significance in perspective the more important challenge for current transport policy however is found to be that concerning the reverse linkage i e given a growing economy how can we develop a transport system that does not then erode the benefits it created in the first place finally and to that end a possible future system of sustainable access and mobility service is characterized and policy conclusions are drawn

implementation in dynamic job transfers abstract the implementation problem in a dynamic incentive contract with job transfers is studied we find that in the job transfers contract there are multiple equilibria in some of which the agents can lie we construct a mechanism to uniquely implement the principal s desired equilibrium under job transfers

multinationals multi plant economies and the gains from trade a general equilibrium model of a multinational enterprise based on economies of multi plant operation is developed these economies are modelled as arising from the existence of a joint input whose productivity in each production facility is independent of the number of facilities maintained by a firm the multinational thus offers the world increased technical efficiency by eliminating the duplication of the joint input that would occur with independent national firms since this technical efficiency may come at the expense of increased market power the full determinants of home country host country and world welfare are considered

incomplete information incentive compatibility and the core 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 econometrica46 807 816 or as an attempt to introduce coalitional contracts in the notion of incentive efficiency of b holmstrom and r myerson 1983 econometrica51 1799 1819 while there are some special cases in which the incentive compatible core is non empty our main result shows that is not generally true journal of economic literatureclassification numbers c71 c72 d51

continuous implementation of constrained rational expectations equilibria abstract we investigate the implementability of the social choice correspondence induced by constrained rational expectations equilibria we construct an almost continuous mechanism that implements it provided that information held by each agent is non exclusive

optimal pricing mechanisms with unknown demand the standard profit maximizing multi unit auction intersects the submitted demand curve with a preset reservation supply curve which is determined using the distribution from which the buyers valuations are drawn however when this distribution is unknown a preset supply curve cannot maximize monopoly profits the optimal pricing mechanism in this situation sets a price to each buyer on the basis of the demand distribution inferred statistically from other buyers bids the resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity and convergence can be substantially faster than with sequential price experimentation

pivotal players and the characterization of influence a player s influence relative to a mechanism and opponents strategies is the maximum difference his action can make in the expected value of a collective outcome a player is pivotal if his influence exceeds a threshold we provide tight bounds on the number of pivotal players and on average influence these bounds are uniform over all mechanisms and action profiles and are achieved at mechanisms that take the form of a majority rule we illustrate our analysis with an example of provision of a public good where each individual compares the private cost of his contribution with its influence on the collective outcome journal of economic literature classification numbers d62 d89 h41

the valuation effects of the 1977 community reinvestment act and its enforcement abstract we examine the wealth effects of the passage of the community reinvestment act cra of 1977 for commercial banks and savings and loan associations we find significantly negative average excess returns for small nyse amex banks and sl in contrast there is no evidence that large nyse amex institutions or nasdaq institutions experience wealth losses we also study the effects of individual cra protests against institutions and find they produce significantly negative excess returns which are not reversed when the protests are resolved our results have implications for proposed changes to cra and for the future consolidation of the financial services industry the results also demonstrate the difficulties associated with studying returns from the early years of the nasdaq market

carbon risk carbon risk awareness and the cost of debt financing we seek insights into potential benefits for firms adopting strategies to improve business sustainability in a carbon constrained future we investigate whether lenders incorporate a firm s exposure to carbon related risk into lending decisions through the cost of financing and if so importantly whether firms can mitigate the penalty by demonstrating an awareness of their carbon risks we use a sample of 255 firm year observations from eight industries over the period 2009 2013 we measure carbon related risk exposure as the firm s historical carbon emissions and our primary measure of carbon risk awareness is based on the firm s willingness to respond to the carbon disclosure project cdp survey we document a positive association between cost of debt and carbon risk for firms failing to respond to the cdp further this association is economically meaningful with a one standard deviation increase in carbon risk mapping into between a 38 and 62 basis point increase in the cost of debt equally we find that this penalty is effectively negated for firms exhibiting carbon risk awareness our results are robust when we consider alternate measures of carbon awareness disclosure through alternative medium to the cdp and firms annual cash investment in new capital assets using cleaner technology our results highlight not only the importance of carbon awareness as a business strategy for polluting firms but also its importance to lenders exposed to their clients default and reputational risk the debt market appears to incorporate historical carbon emissions and forward looking indicators of carbon performance

implementation in undominated strategies a look at bounded mechanisms this paper examines the impact of placing natural restrictions on the mechanisms considered for implementation problems it is shown that if all mechanisms are considered and preferences satisfy a basic condition then any social choice correspondence can be implemented in undominated strategies an example points out that the strength of this result derives from the use of mechanisms with questionable features in part of the message space the agent who announces the highest integer is rewarded this sort of tail chasing construction common in the constructive proofs of the literature is used to assure that undesired strategy combinations do not form an equilibrium if such mechanisms are ruled out then the social choice correspondences which can be implemented in undominated strategies satisfy an incentive compatibility type condition called strategy resistence for social choice functions this is equivalent to strategy proofness this contrast suggests that this issue should be examined as it applies to other solution concepts used in implementation theory the last portion of the paper begins to explore the issue as it relates to nash implementation and undominated nash implementation

a credit score system for socially responsible lending ethical banking microfinance institutions or certain credit cooperatives among others grant socially responsible loans this paper presents a credit score system for them the model evaluates social and financial aspects of the borrower the financial aspects are evaluated under the conventional banking framework by analysing accounting statements and financial projections the social aspects try to quantify the loan impact on the achievement of millennium development goals such as employment education environment health or community impact the social credit score model should incorporate the lender s know how and should also be coherent with its mission this is done using multi criteria decision making mcdm the paper illustrates a real case a loan application by a social entrepreneur presented to a socially responsible lender the decision support system not only produces a score but also reveals strengths and weaknesses of the application

informational size and efficient auctions we develop an auction model for the case of interdependent values and multidimensional signals in which agents signals are correlated we provide conditions under which a modification of the vickrey auction which includes payments to the bidders will result in an ex post efficient outcome furthermore we provide a definition of informational size such that the necessary payments to bidders will be arbitrarily small if agents are sufficiently informationally small the efficiency of market processes has been a central concern in economics since its inception auction mechanisms constitute a very important class of market processes yet the analysis of auctions has typically focused on their revenue generating properties rather than their efficiency properties this is partly due to the fact that for many of the problems typically studied efficiency is trivial when bidders have private values a standard vickrey auction guarantees that the object will be sold to the buyer with the highest value for the object in the case of pure common values that is when all buyers have the same value for the object any outcome that with probability one assigns the object to some bidder will be efficient the intermediate case in which bidders values are not identical but may depend on other bidders signals is more problematic when bidders values are interdependent in this way any single bidder s value may depend on the information of other agents and hence he may not even know his own value it is not clear what it would mean for an agent to bid his true value even before we ask if it is optimal for him to do so several papers have studied efficient auctions with interdependent values and independent types 1 while this is a natural place to begin the independence assumption is not compelling for many problems a prototypical problem is one in which an object is to be sold and individual bidders have private information about the object say the quantity or quality of oil in a tract to be sold that affects other agents values for the object when bidders types include information about objective characteristics of the object being sold their types will typically not be independent when agents types are statistically dependent we show that there exist efficient auction mechanisms for interdependent value auction problems that are essentially vickrey auctions augmented by payments to not from the agents most importantly we link the

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

reducing co2 emissions under fiscal retrenchment a multi cohort cge model for austria the stabilization of budget deficit and budget debt ratios by fiscal retrenchment in order to fulfill the maastricht criteria for the emu is of central focus in most eu countries at the same time the national policy dimension of acute environmental problems such as global warming has receded in the public eye the environmental dimension nonetheless remains urgent and a re evaluation of the prospects of co2 policy is needed against the background of fiscal retrenchment required by supranational obligations we shall do this for the small open austrian economy by constructing a dynamic multi cohort cge model enabling us to assess quantitatively the lifetime welfare impacts on the cohorts affected by three different options for using co2 permit revenues the distribution of welfare costs of toronto co2 policy across cohorts significantly differs with use this is explained by income inheritance and price effects

informational size and incentive compatibility we examine a general equilibrium model with asymmetrically informed agents the presence of asymmetric information generally presents a conflict between incentive com patibility and pareto efficiency we present a notion of informational size and show that the conflict between incentive compatibility and efficiency can be made arbitrarily small if agents are of sufficiently small informational size the incompatibility of pareto efficiency and incentive compatibility is a central theme in economics and game theory the issues associated with this incompatibility are particularly important in the design of resource allocation mechanisms in the presence of asymmetrically informed agents where the need to acquire information from agents in order to compute efficient outcomes and the incentives agents have to misrepresent that information for personal gain come into conflict despite a large literature that focuses on these issues there has been little work aimed at understanding those situations in which informational asymmetries are quantitatively important virtually every transaction is characterized by some asymmetry of information any investor who buys or sells a share of stock generally knows something rel evant to the value of the share that is not known to the person on the other side of the transaction in order to focus on more salient aspects of the problem many models rightly ignore the incentive problems associated with informa tional asymmetries in the belief that for the problem at hand agents are infor mationally small however few researchers have investigated the circumstances under which an analysis that ignores these incentive problems will yield results similar to those obtained when these problems are fully accounted for in this paper we study a class of mechanism design problems our goal is to formalize informational size in a way that when agents are informationally small 1 early versions of this paper circulated under the titles informational smallness and pareto effi ciency and informational smallness and incentive compatibility we thank jacques cremer dean foster andreu mas colell stephen morris david schmeidler and particularly faruk gul for help ful conversations and rajiv vohra for a very careful reading we also thank the numerous partici pants in seminars at which this paper was presented for helpful comments we also thank an editor and the referees for very helpful comments and thank ichiro obara for pointing out an error in an earlier version postlewaite gratefully acknowledges support from the national science foundation

efficiency of large double auctions we consider large double auctions with private values values need be neither symmetric nor independent multiple units may be owned or desired participation may be stochastic we introduce a very mild notion of a little independence we prove that all nontrivial equilibria of auctions that satisfy this notion are asymptotically efficient for any alpha 0 inefficiency disappears at rate 1 n 2 alpha

informational size incentive compatibility and the core of a game with incomplete information we study the ex ante incentive compatible core and provide conditions under which the ex ante incentive compatible core is nonempty when agents are informationally small in the sense of mclean and postlewaite 2002a econometrica 70 2421 2453