Honesty and Epistemological Implementation of Social Choice Functions with Asymmetric Information

Abstract

We investigate the implementation of social choice functions with asymmetric information concerning the state from an epistemological perspective. Although agents are either selfish or honest, they do not expect other participants to be honest. However, an honest agent may exist not among participants but in their higher-order beliefs. We assume that “all agents are selfish” never happens to be common knowledge. We show a positive result in general asymmetric information environments, demonstrating that with a minor restriction on signal correlation called information diversity, any incentive-compatible social choice function, whether ethical or nonethical, is uniquely implementable in the Bayesian Nash equilibrium.

Keywords: unique implementation, asymmetric information, honesty, no common knowledge on selfishness, information diversity

JEL Classification: C72, D71, D78, H41