Multidimensional Bargains and the Desirability of Ex Post Inefficiency

John W Pratt and Richard Zeckhauser

Journal of Risk and Uncertainty, 1992, vol. 5, issue 3, 205-16

Abstract: In multidimensional bargaining situations where individuals possess relevant private information, say about preferences, allocational efficiency is a central concern. Even if there is no squabbling over distribution--for example, if contingent commitments on allocations can be made before private information is secured--honest revelation comes only by sacrificing efficiency. Indeed, the incentive-compatible, second-best outcomes generally require that some allocations be off the contract curve (ex post inefficient). The potential for recontracting, by ruling out such inefficient allocations and the second-best equilibria they support, would hurt matters further. Copyright 1992 by Kluwer Academic Publishers

Date: 1992
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