Collective Decision Through an Informed Mediator

Abstract

An imperfectly informed mediator (or mechanism designer) must make a decision on behalf of a group of agents, who are privately informed about their valuations attached to the decision. The mediator chooses a mechanism before observing a signal about the agents' valuations and commits to truthfully using this information in the mechanism. We give a necessary and sufficient condition on the mediator's information under which the ex post efficient decision rule can be implemented by an ex ante budget balanced, dominant strategy incentive-compatible and ex post individually rational mechanism. In a large economy, we show that the amount of information that the mediator needs to know about each agent to achieve ex post efficiency is bounded as the number of agents grows to infinity.

Keywords: Collective Decision; Provision of Public Goods, Asymmetric Information, Cross-Subsidization Mechanism, Public Finance

JEL Classification: C70, D82, G23, G38, H41