Information Aggregation and Adverse Selection

31 Pages Posted: 11 Dec 2010

See all articles by Kostas Koufopoulos

Kostas Koufopoulos

University of Warwick - Finance Group

Aristotelis Boukouras

affiliation not provided to SSRN

Date Written: December 8, 2010

Abstract

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 interim distribution of types is common knowledge (the exact number of agents for each type is known), then a mechanism exists, which is consistent with truthful revelation of private information and which implements first-best allocations of resources as the unique Bayes-Nash equilibrium. Our result requires weak restrictions on preferences (Local Non-Common Indifference Property) and on the Pareto correspondence (Anonymity) and it is robust to small perturbations regarding the knowledge of the interim distribution. Our paper is useful in understanding the power of information aggregation in alleviating incentive constraints and is particularly pertinent to games with large populations, in which case the interim distribution of types approaches to a unique distribution.

Keywords: Adverse Selection, Anonymity, First-best Allocations, Full Implementation

JEL Classification: D71, D82, D86

Suggested Citation

Koufopoulos, Kostas and Boukouras, Aristotelis, Information Aggregation and Adverse Selection (December 8, 2010). Available at SSRN: https://ssrn.com/abstract=1722178 or http://dx.doi.org/10.2139/ssrn.1722178

Kostas Koufopoulos

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

Aristotelis Boukouras (Contact Author)

affiliation not provided to SSRN ( email )

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