Efficient Allocations in Economies with Asymmetric Information When the Realized Frequency of Types Is Common Knowledge
22 Pages Posted: 24 Jul 2013 Last revised: 6 Jan 2016
Date Written: August 13, 2015
We consider a general economy, where agents have private information about their types. Types can be multi-dimensional and potentially interdependent. We show that, if the realized frequency of types (the exact number of agents for each type) is common knowledge, then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique equilibrium. The result requires weak restrictions on preferences (Local Non-Common Indifference Property) and on the Pareto correspondence (Anonymity) and it is robust to small noise regarding the realized frequency.
Keywords: adverse selection, first-best, full implementation, mechanism design, single-crossing property
JEL Classification: D71, D82, D86
Suggested Citation: Suggested Citation