Veto Constraint in Mechanism Design: Inefficiency with Correlated Types
Compte, Olivier, and
Philippe Jehiel. 2009. "Veto Constraint in Mechanism Design: Inefficiency with Correlated Types."
American Economic Journal: Microeconomics,
We consider bargaining problems in which parties have access to
outside options, the size of the pie is commonly known and each
party privately knows the realization of her outside option. We allow
for correlations in the distributions of outside options. Parties have
a veto right, which allows them to obtain at least their outside option
payoff in any event. Besides, agents can receive no subsidy ex post.
We show that inefficiencies are inevitable whatever the exact form
of correlation, as long as private information is dispersed. We also
illustrate how veto constraints differ from ex post participation constraints.
(JEL C78, D82)
Article Full-Text Access
Compte, Olivier (Paris School of Economics)
Jehiel, Philippe (Paris School of Economics and U College, London)
C78: Bargaining Theory; Matching Theory
D82: Asymmetric and Private Information
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