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Incentive compatibility and incomplete information

Ledyard, John O. (1978) Incentive compatibility and incomplete information. Journal of Economic Theory, 18 . pp. 171-189. ISSN 0022-0531. doi:10.1016/0022-0531(78)90047-9.

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It is by now reasonably well known that when informationally decentralized processes are used to make collective choice decisions or to allocate resources, individuals may find it in their interest to distort the information they provide and that these distortions may lead to non-optimal group decisions. In the social choice context, this has been formalized in the Gibbard-Satterthwaite Theorem, which states that all non-dictatorial rules will have this property. In a different context, Hurwicz has shown that there is a private goods neo-classical exchange economy such that any decentralized mechanism which selects Pareto-optimal allocations and which has a no-trade option will have this property. Roberts has provided a similar example in the public goods context. Other work (e.g., Green-Laffont, Groves-Loeb, Hurwicz, and Walker) indicates that, for mechanisms designed to select efficient outcomes, in most environments some agent will have an incentive to misrepresent his information and thus to manipulate the mechanism. All these results lead one to the conjecture that it is almost impossible to design any mechanism for group decisions which is compatible with individual incentives and efficiency.

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URLURL TypeDescription ItemSSWP 187
Additional Information:© 1978 by Academic Press, Inc. Received August 30, 1976; revised May 5, 1978. Both the National Science Foundation and the Fairchild Foundation are gratefully acknowledged for their support. Early parts of this work were completed at The Center for Mathematical Studies in Economics and Management Science, Northwestern University. I thank Ted Groves, Andy Postlewaite, and John Roberts for helpful conversations. Formerly SSWP 187.
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ID Code:83409
Deposited By: Jacquelyn Bussone
Deposited On:22 Nov 2017 18:06
Last Modified:15 Nov 2021 19:57

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