On the Informational Requirements of Decentralized Pareto-Satisfactory Mechanisms in Economies with Increasing Returns

Guoqiang Tian

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the dimension requirements of informationally decentralized Pareto-satisfactory processes in production economies with increasing returns to scale or more general types of non-convexities. We show that the marginal cost pricing (MCP) mechanism is informationally effcient over the class of non-convex production economies where MCP equilibrium allocations are Pareto effcient. We then discuss the informational requirements of realizing Pareto effcient allocations for a general class of non-convex production economies. We do so by examining the dimension of the message space of the marginal cost pricing mechanism with transfers. Since the set of marginal cost pricing equilibrium allocations with transfers contains Pareto effcient allocations as a subset for every economy under consideration, Pareto e±cient allocations can be realized through the MCP mechanism with transfers, which is informationally decentralized and has a finite-dimensional message space. This result is sharply contrasted to the impossibility result given in Calsamigla (1977).

Keywords: Informational Requirements; Decentralized Pareto-Satisfactory Mechanisms; Increasing Returns (search for similar items in EconPapers)
JEL-codes: D5 D61 D71 D83 P51 (search for similar items in EconPapers)
Date: 2004, Revised 2006-10
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