efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

ex ante incentive efficient trading mechanisms without the private valuation restriction abstract the private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders this paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities and for bilateral trade markets establishes the impossibility of a first best solution across a class of trading problems employing uniform priors and linear valuation structures this paper also compares levels of market efficiency for varying numbers of traders

the influence of private contractual failure on regulation the case of oil field unitization an analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement the focus of the study is oil field unitization regulation in oklahoma texas and wyoming federal lands from 1948 through 1975 despite large potential gains from unitization private negotiations fail because of lease heterogeneities and information problems regarding lease value estimates in response the federal and state governments have adopted strikingly different policies to encourage unitization with different results only the federal government s regulations are effective because they surmount information problems texas has the least successful regulation the paper argues that the policy differences are due to the political influence of small firms that benefit from nonunitized production 25 references 2 tables

partial exposure in large games abstract in this work we introduce the notion of partial exposure in which the players of a simultaneous move bayesian game are exposed to the realized types and chosen actions of a subset of the other players we show that in any large simultaneous move game each player has very little regret even after being partially exposed to other players if players are given the opportunity to be exposed to others at the expense of a small decrease in utility players will decline this opportunity and the original nash equilibria of the game will survive

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

imperfect patent protection and innovation the paper studies the effect of strengthening protection on r d incentives in the context of process innovation it shows that for non drastic innovations that do not render the pre existing technology obsolete the innovator might favor imitation if the expected royalty rate determined by the court is sufficiently high since imitation is discouraged for very high levels of patent protection r d investment is maximized for an intermediate level of patent strength this finding provides a theoretical explanation for emerging empirical evidence questioning the effectiveness of strengthening protection on innovation incentives it also serves as a justification for the imperfections of the existing patent system that allows for some infringement

efficiency and information aggregation in large uniform price auctions abstract we prove that the equilibria of a large interdependent value uniform price auction model where bidders have arbitrary preferences for multiple units can be approximated by a nonatomic exchange economy we show that the uniform price auction is approximately efficient with a large number of participants and asymptotically aggregates idiosyncratic bidder information into the market price more generally our analysis framework provides conditions justifying the use of nonatomic limit model approximations to analyze the large market behavior of game theoretic models we demonstrate continuity requirements on the economic primitives sufficient for the equilibrium strategies of the two models to converge as the number of participants in the finite game approaches infinity

the role of fees in patent systems theory and evidence this paper reviews the economic literature on the role of fees in patent systems two main research questions are usually addressed the impact of patent fees on the behavior of applicants and the question of optimal fees studies in the former group confirm that a range of fees affect the behavior of applicants and suggest that a patent is an inelastic good studies in the latter group provide grounds for both low and high application or pre grant fees and renewal or post grant fees depending on the structural context and policy objectives the paper also presents new stylized facts on patent fees of 30 patent offices worldwide it is shown that application fees are generally lower than renewal fees and renewal fees increase more than proportionally with patent age 2012 john wiley sons ltd

robustly coalition proof incentive mechanisms for public good provision are voting mechanisms and vice versa we study the relation between mechanism design and voting in public good provision if incentive mechanisms must satisfy conditions of robust coalition proofness as well as robust incentive compatibility the participants contributions to public good provision can only depend on the level of the public good that is provided and that level can only depend on the population shares of people favouring one level over another for a public good that comes as a single indivisible unit the outcome depends on whether or not the share of votes in favour of provision exceeds a specified threshold with more provision levels for the public good more complicated mechanisms can be used but they still involve the counting of votes rather than any measurement of the participants willingness to pay the article thus provides a foundation for the use of voting mechanisms

simple contracts renegotiation under asymmetric information and the hold up problem abstract in this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non trivial it is argued that the default decision may be interpreted as a simple contract that the parties have written ex ante this result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold up problem to be solved even if the parties valuations are private information

pollution claim settlements under private information abstract the classical problem of resolving a nuisance dispute between a pollution generating firm and nearby residents is modelled here as a mechanism design problem we assume that the designer of the mechanism is the firm that it is uncertain about the actual losses suffered by residents and that the initial assignment of property rights is one where each resident is entitled to prevail we derive a profitmaximizing scheme under the individual rationality and incentive compatibility constraints and examine its properties it is shown that the outcomes it yields are sometimes inefficient moreover when many residents are affected by pollution and the degree of uncertainty with respect to the losses they suffer is large these inefficiencies become rampant

dynamic adjustment to land taxation policy neutrality and welfare implications abstract in this paper we use a dynamic three sector model to examine the neutrality and welfare effects of land income taxes we find that 1 taxes that are neutral in long run equilibrium need not be neutral in the short run 2 short run neutrality depends upon the tax treatment of development costs and losses and 3 many of the neutrality results hold under both static and rational expectations assumptions we also find that even without externality assumptions nonneutrality in the short run does not necessarily entail a welfare cost and may be welfare enhancing when agents have less than perfect foresight

bargaining orders in a multi person bargaining game abstract this paper studies a complete information bargaining game with one buyer and multiple sellers of different sizes or bargaining strengths the bargaining order is determined endogenously with a finite horizon there is a unique subgame perfect equilibrium outcome in which the buyer purchases in order of increasing size from the smallest to the largest with an infinite horizon if the sellers have sufficiently different sizes there is a unique equilibrium outcome which has the same bargaining order if the sellers have similar sizes with an infinite horizon there may be multiple equilibrium outcomes with different bargaining orders

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

public goods with congestion abstract i consider the problem of the efficient provision of a congested limited capacity public good in a setting with asymmetric information i show in particular that when the capacity of the good is limited in a wide class of economies it is possible to construct an incentive compatible mechanism that always produces the good at the efficient level balances the budget and satisfies voluntary participation constraints this result is in contrast with the corresponding impossibility result for pure public goods due to mailath and postlewaite rev econ stud 57 1990 351 359 and rob j econ theory 47 1989 307 333

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

membership in citizen groups we analyze the coordination problem of agents deciding to join a group that uses membership revenues to provide a discrete public good and excludable benefits the public good and the benefits are jointly produced so that benefits are valued only if the group succeeds in providing the public good with asymmetric information about the cost of provision the static membership game admits a unique equilibrium and we characterize the optimal membership fee we show that heterogeneity in valuations for the excludable benefits is always detrimental to the group however in a dynamic contest in which heterogeneity arises endogenously returning members receive additional seniority benefits at the expense of junior members we show that in the ex ante optimal contract offering seniority benefits is beneficial for the group despite the heterogeneity in valuations created

on the neutrality of the property tax in a recent issue of this journal there appeared an interesting controversy between bentick and thirsk on the neutrality of the property tax bentick 1979 thirsk 1979 the former argues that the property tax is nonneutral with respect to the intertemporal allocation of land whereas the latter argues that it is neutral and attributes the difference in the results to the choice of the discount rate this comment points out the following first bentick s result can be derived from thirsk s basic equation so that it is inappropriate to attribute the difference in the results to the choice of the discount rate second whether a property tax is neutral or not depends upon whether the value in use or the market value is chosen as the tax base as thirsk correctly recognizes the introduction of a property tax reduces the value of land by the amount of the present value of tax liabilities thus we obtain his equation 1 which is reproduced below

property rights and efficiency of voluntary bargaining under asymmetric information we show that in public good problems under asymmetric information the success of voluntary bargaining is closely related to the structure of property rights we characterize property rights structures and mediated bargaining procedures that either lead to an efficient voluntary resolution to public good problems or achieve the efficient outcome but slightly coerce the agents into participation in this respect we identify efficient property rights structures in this paper we show that in public good problems under asymmetric information the success of any voluntary bargaining procedure is closely related to the structure of property rights in the economy for clarity of exposition we focus our attention on the following example in a town inhabited by n residents a firm is considering whether to operate a factory that generates pollution as an inevitable by product a higher level of production generates a correspondingly higher level of pollution the firm s profits are increasing with the level of production and the welfare of the residents is decreasing with the level of pollution the firm s profitability and residents preferences are assumed to be private information the structure of property rights specifies the level of pollution that the firm is entitled to emit into the environment for every such economy we describe and prove the existence of efficient property rights structures we characterize property rights structures and voluntary mediated bargaining procedures that maximize the sum of residents utilities and the firm s profit and thus lead to an efficient resolution to the public good problem furthermore we show that these efficient property rights structures are robust to changes in the underlying environment this suggests that the combination of efficiency minded legislation that would set the initial structure of property rights appropriately and a mediator who would base his recommendations on an efficient decision mechanism could facilitate the achievement of the efficient outcome under some circumstances however we show that the mediated voluntary bargaining procedure has to be replaced by compulsory arbitration that coerces agents into agreement we provide results that show that when the efficient property rights structure is adopted the degree of coercion that is necessary to obtain the efficient outcome is small thus in contrast to rob 1989 and mailath and postlewaite 1 our results apply to any public good problem where the costs and benefits of providing the public good are monotonically increasing in the level of provision and where some additional restrictions to be specified later are imposed on the form of the utility and profit functions and on the information structure

inequality control rights and rent seeking sugar cooperatives in maharashtra this paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members the two key assumptions are constraints on lump sum transfers from poorer members and disproportionate control rights wielded by wealthier members transfers of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings the theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency by inducing a lower input price and a lower level of installed crushing capacity predictions concerning the effect of the distribution of local landownership on sugarcane price capacity levels and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the indian state of maharashtra over the period 1971 93

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

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

when do more patents reduce r d this paper develops a simple duopoly model in which investments in r d and patents are inputs in the production of firm rents patents are necessary to appropriate the returns to the firm s own r d but patents also create potential claims against the rents of rival firms analysis of the model reveals a general necessary condition for the existence of a positive correlation between the firm s r d intensity and the number of patents it obtains when that condition is violated changes in exogenous parameters that induce an increase in firms patenting can also induce a decline in r d intensity such a negative relationship is more likely when 1 there is sufficient overlap in firms technologies so that each firm s inventions are likely to infringe the patents of another firm 2 firms are sufficiently r d intensive and 3 patents are cheap relative to both the cost of r d and the value of final output this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

stability in large bayesian games with heterogeneous players bayesian nash equilibria that fail to be hindsight or alternatively ex post stable do not provide reliable predictions of outcomes of games in many applications we characterize a family of large bayesian games with many players in which all equilibria are asymptotically hindsight stable and discuss the consequences of this robustness property in contrast to earlier literature we establish hindsight stability in a class of games in which players are not anonymous and type spaces and action spaces can be infinite

innovation and industry evolution the theoretical literature on innovation has been concerned with a single innovation produced by a number of identical agents by contrast we consider a market in which one firm is the current incumbent while the remaining firms are challengers moreover we consider a sequence of innovations so that success does not imply that the successful firm reaps monopoly profits forever after but only until the next better innovation is developed we begin with a fully optimizing behavioral model and derive the equivalent of the schumpeterian process of creative destruction that is a firm enjoys temporary monopoly power but is soon overthrown by a more inventive challenger the essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process the fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers goods the new methods of production or transportation the new markets the new forms of industrial organization that capitalist enterprise creates schumpeter 1942 pp 82 83

anti foreign bias in the court welfare explanation and evidence from canadian intellectual property litigations abstract are judges concerned in the same way as policy makers with the effects of their decisions on national welfare in this paper we analyze this question by examining the outcomes of intellectual property rights ipr litigations between domestic and foreign firms we use a simple model of oligopoly in which ipr takes the form of a more efficient production technology to illustrate how antiforeign bias varies across cases when judges have welfare concerns the predictions of the model are tested using data on all canadian ipr cases over a four year period we find that foreign firms have about 25 percentage points lower probability of protecting their ipr in canadian courts relative to domestic firms we also find that courts decisions are aligned with national welfare maximization principles so that foreign firms are less likely to win in those cases when the implied welfare gains from not protecting foreign ipr are greater these findings are robust to controlling for endogenous selection of firms into litigation

cross border externalities and cooperation among representative democracies abstract this paper analyzes the provision of public goods with cross border externalities by representative democracies the level of provision of each country is decided by a policy maker elected by majority rule at the country level we compare the case in which policy makers set their policies noncooperatively with the case in which they set their policies through coasian cooperation cooperation induces policy makers to internalize cross border externalities but it also induces strategic voters to elect a policy maker who cares less about the public good to reduce their public good contribution the former effect increases public good provision while the latter reduces it we show that once voters incentives are taken into account whether cooperation is beneficial depends neither on voters preferences nor on the magnitude of spillovers nor on the size bargaining power or efficiency of each country instead it depends only on the curvature of the demand for the public good cooperation increases decreases public good provision when the demand function is more less convex than the unit elastic demand function hence the desirability of international cooperation depends mostly on the type of public good considered

breakdown in multilateral negotiations abstract we analyze a complete information multilateral bargaining model in which a buyer is to purchase two complementary goods from two sellers binding cash offer contracts are used to govern transactions in contrast to preexisting literature we do not normalize the parties reservation utilities to zero we show that this assumption holds critical importance by demonstrating that a complete breakdown of negotiations may occur as the unique equilibrium outcome even if only two sellers are present

the scope of anonymous voluntary bargaining under asymmetric information we present a model of anonymous collective bargaining where individuals preferences and information may be significantly interdependent we show that the bargaining outcome becomes independent of individuals preferences and information as the bargaining group increases in size as a corollary we show that anonymous voluntary bargaining completely fails in large groups either the difference between the bargaining outcome and the status quo vanishes as the size of the group becomes larger or the bargaining becomes coercive and results in a violation of at least some individuals rights the result provides a rationale for the inherent difficulty of reform in the presence of asymmetric information

on the equivalence of bayesian and dominant strategy implementation we consider a standard social choice environment with linear utilities and independent one dimensional private types we prove that for any bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus the short proof is based on an extension of an elegant result due to gutmann kemperman reeds and shepp 1991 we also show that the equivalence between bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations

the governance of exchanges members cooperatives versus outside ownership the paper compares co operative governance structure to outside ownership the distinction between the two lies in who has residual rights of control it is found that a co operative becomes relatively less efficient as the environment becomes more competitive and the interests of members become more skewed these ideas are applied to the governance of exchanges this abstract was borrowed from another version of this item

entry and patenting in the software industry to what extent are firms kept out of a market by patents covering related technologies do patents held by potential entrants make it easier to enter markets we estimate the empirical relationship between market entry and patents for 27 narrowly defined categories of software products during the period 1990 2004 controlling for demand market structure average patent quality and other factors we find that a 10 increase in the number of patents relevant to market reduces the rate of entry by 3 8 and this relationship intensified following expansions in the patentability of software in the mid 1990s however potential entrants with patent applications relevant to a market are more likely to enter it finally patents appear to substitute for complementary assets in the entry process because patents have both greater entry deterring and entry promoting effects for firms without prior experience in other markets this paper was accepted by bruno cassiman business strategy

a reputational model of authority abstract the paper provides a model where authority relaionships are founded on reputation the viability of authority is the result of subordinates free riding on each other s challenges reducing the frequency of challenges and making reputation worth defending the party with authority secures subordinates compliance through the payment of rents to influence the extent of their failure to act collectively and exacerbate the free rider problem they face the model provides a framework to explain how the magnitude and form of these rents depend on the primitives of the environment and on the authority s design of its reputation applications to employment relationships dictatorships and the notion of legitimacy are considered

workers versus firms bargaining over a firm s value we introduce a distinction between a firm and its network of workers in a competitive world if networks are easily lured away the workers must receive the entire value of their contribution to the firm how then can service firms have equity value a model is analysed in which workers are paid less as a group than their value even in a competitive world the workers are assumed to have a nonwage benefit for working at the current firm this benefit is privately known these privately known benefits make it impossible for the workers to agree on a division of their value should they leave the existing firm for a new enterprise the result is that the workers may receive a total compensation that is less than their contribution to the firm

oil field unitization contractual failure in the presence of imperfect information an empirical analysis of the impact of transaction costs on contracting shows that imperfect in formation can seriously limit the effectiveness of private contracting the case under study is the widespread failure of private crude oil producing firms to use us oil fields to reduce rent dissipation rent dissipation follows as multiple firms compete for migratory oil in common oil pools unitization is the obvious private contractual solution to rent dissipation the authors argue that despite large net gains from unitization imperfect information and information asymmetries among the negotiating parties regarding lease values prevents consensus on unit shares as a result contracts are often not completed or only fragmented units are completed 9 references 1 figure 4 tables

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

voter participation and strategic uncertainty the paradox of not voting is examined in a model where voters have uncertainty about the preferences and costs of other voters in game theoretic models of voter participation under complete information equilibrium outcomes can have substantial turnout even when voting costs are relatively high in contrast when uncertainty about preferences and costs is present only voters with negligible or negative net voting costs participate when the electorate is large

provision of a public good with bounded cost abstract we provide a sufficient condition for the expected aggregate contribution to a public good to be bounded independently of the size of the population

how strong are weak patents economists usually conceive of patents as property rights that prevent others from practicing the patenting technology unless they first obtain a license from the patent holder even for ironclad patents i e for patents that are certain to be valid the existing literature has shown that the analysis of equilibrium licensing contracts is surprising subtle and complex 1 for example the analysis is quite different depending upon whether one firm s licensing contract is observable to the other firms likewise equilibrium outcomes are quite different if royalties must be linear than in the case where two part tariffs and other non linear royalties are permitted in that literature a downstream firm that refuses to sign a contract with the upstream supplier either exits the industry in the case that the upstream supplier controls an essential input or must rely on more costly inputs in the case of a non essential input in other words the downstream firm s threat point is to use some backstop technology in practice however patents are issued after a brief examination by the patent office to see if they meet the statutory requirements for novelty and non obviousness mounting evidence indicates that many weak patents i e patents unlikely to be found valid if challenged in court are issued by the u s patent and trademark office uspto 2 some observers view this with great alarm arguing that uspto is handing out undeserved monopolies others by contrast have suggested that these weak patents are of little concern because they will have little commercial impact because they will be licensed at commensurately low royalty rates or not enforced at all we study the commercial impact of weak patents more precisely we define a patent s strength as the probability that it will be found valid if challenged in court and we examine the relationship between a patent s strength and the royalties that it can command the distinctive

the impact on development timing of property and profit taxation bring forward in time the conversion of land from one use to another skouras 1978 bentick 1979 mills 1981 noguchi 1982 wildasin 1982 likewise it is also now accepted that a tax on the profit derived from such conversions a development gains tax will not affect the timing of conversion provided that the true profit from conversion is correctly assessed by the taxing authorities bentick and fischer 1975 evans 1982 bentick 1988 2 the purpose of this article is to show that these conclusions are quite specific to the model that has been implicitly or explicitly constructed by the authors cited above and that this model is potentially misleading to show how the impact of taxation is model specific three models of development timing are analyzed model 1 allows ex ante only one future or urban use for land this is obviously hopelessly unrealistic but it shows the importance of implicit assumptions model 2 allows ex ante more than one future or urban use but treats one of those uses as permanent so that ex post urban development is a once only event presumably as a result of prohibitive conversion costs finally model 3 allows many future or urban uses which can be undertaken in sequence through a process of urban development and redevelopment so that both ex ante and expost there are many land uses the features common to all three models are that land is currently in a use which offers a fixed rental of r in say farming that there is at least one alternative urban use which offers a rental of r and that there are costs involved in converting land from one use to another we consider each of these models in turn

the patent paradox revisited an empirical study of patenting in the u s semiconductor industry 1979 1995 we examine the patenting behavior of firms in an industry characterized by rapid technological change and cumulative innovation recent survey evidence suggests that semiconductor firms do not rely heavily on patents to appropriate returns to r d yet the propensity of semiconductor firms to patent has risen dramatically since the mid1980s we explore this apparent paradox by conducting interviews with industry representatives and analyzing the patenting behavior of 95 u s semiconductor firms during 1979 1995 the results suggest that the 1980s strengthening of u s patent rights spawned patent portfolio races among capital intensive firms but it also facilitated entry by specialized design firms

the relevance of private information in mechanism design abstract recent results in mechanism design show that as long as agents have correlated private information and are sufficiently risk neutral it is possible to design mechanisms that leave agents with arbitrarily small information rents we show that these full rent extraction results hinge on the implicit assumption that the agents beliefs uniquely determine their preferences we present an example of the voluntary provision of a public good in which this assumption is relaxed and consequently even in highly correlated environments if agents beliefs do not uniquely determine their preferences then the extraction of the agents entire information rents is impossible

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

public goods with ambiguity in large economies abstract we consider a canonical problem in economics the financing and provision of a public good mailath and postlewaite 1990 show that under natural information and enforcement frictions the probability of providing the public good falls to zero as the population size goes to infinity even if provision of the public good is efficient in this paper we allow agents to have multiple prior beliefs about others valuations and to make choices that reflect their aversion to that ambiguity we show that as long as each agent s set of priors contains some distribution of valuations under which provision is inefficient it is possible to find a mechanism in large economies that finances provision of the public good

confining the coase theorem contracting ownership and free riding if individuals own the right to take any action that they please and are free to contract about behaviour will outcomes be efficient in all situations that is does the coase theorem hold we study this classic question through the lens of a non cooperative model of contract negotiations considering both compulsory and voluntary participation in negotiations in either case we find that all consistent equilibria of the contracting game are efficient in the case of two players but if participation is voluntary and there are more than two players there are situations in which all consistent equilibria are inefficient specifically the provision of public goods tends to be inefficiently low due to strategic abstention from contracting free riding on others agreements can be avoided if individuals do not own all their actions when actions involve the use of assets efficient action ownership may correspond to collective rather than individual asset ownership

can decentralization be beneficial abstract a conventional justification for government hierarchy in the fiscal federalism literature is based upon asymmetry in policy tools or in information access that is available to different levels of government this paper demonstrates that even if these asymmetries are eliminated addition of local regional governments to a one tier central government can be strictly welfare improving

how broad should the scope of patent protection be i explore the trade off between a patent s length that is its lifetime and its width that is its scope of coverage a wider patent generally reduces the distortion of consumers choices between the patented brand of the product and unpatented lower priced varieties sold by competitors but also permits higher prices which increase relative to profits the deadweight losses from consumers switching consumption out of the product class i show under what conditions infinitely lived but very narrowly focused patents are the socially efficient way to reward innovation and under what conditions very short lived but very broad patents are optimal

fault tolerance in large games abstract a nash equilibrium is an optimal strategy for each player under the assumption that others play according to their respective nash strategies but it provides no guarantees in the presence of irrational players or coalitions of colluding players in fact no such guarantees exist in general however in this paper we show that large games are innately fault tolerant we quantify the ways in which two subclasses of large games continuous games and anonymous games are resilient against byzantine faults i e irrational behavior coalitions and asynchronous play we also show that general large games have some non trivial resilience against faults

asymmetric information bargaining problems with many agents a yes or no decision must be made about some issue all agents must agree the coase theorem asserts that the efficient outcome will always result suppose the value positive or negative that an individual attaches to an affirmative decision is privately known to that individual it is proved under very mild conditions that with independent types as the number of agents increases the probability of an affirmative efficient decision goes to zero an example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given

patent protection and r d with endogenous market structure in a model with endogenous number of innovating firms we show that whether patent protection increases r d investment is ambiguous and depends on the market demand function and the cost of r d if the market size increases with number of firms patent protection reduces r d investment if the cost of r d is sufficiently high and higher product differentiation increases the possibility of lower r d investment under patent protection if the market size does not increase with number of firms patent protection never reduces r d investment we find that welfare is lower under patent protection than under no patent protection

efficient mechanisms for public goods with use exclusions constrained efficient provision of an excludable public good is studied in a model where preferences are private information the provision level is asymptotically deterministic making it possible to approximate the optimal mechanism with a mechanism that provides a fixed quantity of the good and charges fixed user fees for access in general the fixed fees involve third degree price discrimination but if names are uninformative about preferences the analysis provides a justification for average cost pricing copyright 2004 wiley blackwell

public goods participation constraints and democracy a possibility theorem abstract it is well known that ex post efficient mechanisms for the provision of indivisible public goods are not interim individually rational however the corresponding literature assumes that agents who veto a mechanism can enforce a situation in which the public good is never provided this paper instead considers majority voting with uniform cost sharing as the relevant status quo efficient mechanisms may then exist which also satisfy all agents interim participation constraints in this case ex post inefficient voting mechanisms can be replaced by efficient ones without reducing any individual s expected utility intuitively agents with a low willingness to pay have to contribute more under majority rule than under an efficient mechanism with a balanced budget although this possibility theorem is not universal in the sense of schweizer 2006 an asymptotic possibility is obtained for certain type distributions

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

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

quadratic voting and the public good introduction this introduction to the public choice special issue on quadratic voting qv and the public good provides an opinionated narrative summary of the contents and surveys the broader literature related to qv qv is a voting rule proposed by one of us weyl quadratic vote buying http goo gl 8yeo73 2012 lalley and weyl quadratic voting https papers ssrn com sol3 papers cfm abstract id 2003531 2016 building off earlier work by groves and ledyard econometrica 45 4 783 810 1977a hylland and zeckhauser a mechanism for selecting public goods when preferences must be elicited kennedy school of government discussion paper d 70 1980 where individuals buy as many votes as they wish by paying the square of the votes they buy using some currency an appreciation of the history of research in the field suggests that qv is uniquely practically relevant compared to the other approximately pareto efficient mechanisms economists have proposed for collective decisions on public goods however it faces a number of sociological and ethical concerns regarding how a political system organized around qv would achieve the efficiency aims stated in abstract theory and whether the pure aggregate income maximizing definition of efficiency qv optimizes in its simplest form is desirable the papers in this volume flesh out and formalize these concerns but also provide important responses in two ways by suggesting domains where they are unlikely to be applicable primarily related to survey research of various kinds and versions of qv using an artificial currency that maintain many of qv s benefits while diffusing the most important critiques together this work suggests both a practical path for applying qv in the near term and a series of research questions that would have to be addressed to broaden its application

the rate at which a simple market converges to efficiency as the number of traders increases an asymptotic result for optimal trading mechanisms private information in an independent private values market provides incentives to traders to manipulate equilibrium prices strategically this strategic behavior precludes ex post efficient market performance increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders bids and offers reveal this paper shows that the expected inefficiency of optimally designed mechanisms relative to ex post efficient allocations decreases almost quadratically as the number of traders increases

public good provision with many participants for a nonexcludable public good with benefit and cost functions independent of the number of participants this paper studies second best allocations under bayesian interim incentive compatibility and interim individual rationality as the number of participants becomes large second best provision levels converge in distribution to first best levels if the latter are bounded second best provision levels become large in absolute terms but small relative to first best levels if benefit and cost functions are isoelastic in contrast for an excludable public good the ratio of second best to first best levels is bounded away from zero

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