Decentralizing Allocation and Distribution by Separation with Information Transfers
Posted: 8 Jan 2001
Governments often divide operations into separate branches that face different constraints and have limited information. Such separation is feasible if each can operate by solving a simple optimization problem using limited information without requiring game-theoretic calculations about others? actions. We specify two structures of one-way information transfers that allow this. For each structure, we present conditions for unified and decentralized decision-making to have identical outcomes. One of them corresponds to using a Samuelson aggregate welfare function that is not always fully efficient. We apply our results to several examples, including public goods and Ramsey pricing.
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