Econometrica: Nov 1983, Volume 51, Issue 6

Efficient and Durable Decision Rules with Incomplete Information<1799:EADDRW>2.0.CO;2-H
p. 1799-1820

Bengt Holmstrom, Roger B. Myerson

We compare six concepts of efficiency for economies with incomplete information, depending on the stage at which individuals' welfare is evaluated and on whether incentive constraints are recognized. An example is shown in which an incentive-efficient decision rule may be unanimously rejected by the individuals in the economy. We define durable decision rules, which can resist such unanimous rejection, and show that efficient durable decision rules exist.

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