1. Credible implementation
- Author
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Chakravorty, Bhaskar, Corchón, Luis C., and Wilkie, Simon
- Subjects
- *
WELFARE economics , *CHOICE (Psychology) , *SOCIAL psychology , *ECONOMIC equilibrium - Abstract
Abstract: The theory of implementation abounds with mechanisms with intricate systems of rewards and punishments off-the-equilibrium path. Generally, it is not in the designer''s best interest to go through with the reward/punishment in the “subgame” arising from some disequilibrium play. This would make the mechanism''s outcome function non-credible. We define a notion of credible implementation and, in the domain of exchange economies, we show that (a) the non-dictatorial Pareto correspondence can be credibly implemented (b) there is no credibly implementable Pareto-efficient and individually rational social choice rule (SCR) and (c) there is no credibly implementable Pareto-efficient and envy-free SCR. We derive necessary and sufficient conditions for credible implementability of SCR. The main implication is that it is sub-optimal for the designer to be endowed with “too much” information about the economy. Finally, we show that the negative results persist under weaker credibility requirements. [Copyright &y& Elsevier]
- Published
- 2006
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