Revelation and Implementation under Differential Information

Abstract

Our goal in this pape is to merge several central ideas in economic theory; strategic behavior (incentive compatibility), differential (or incomplete) information, and the Arrow-Debreu model of general equilibrium. By strategic behavior we refer to the literature which models economic institutions as games in strategic form and uses Nash equilibrium as the solution concept. This literature, motivated by informational decentralization questions, deals not with a single economic environment and a single game, but rather considers a class of environments and a strategic outcome function (game form) which is applied uniformly to this class. The concept of differential information is that of Bayesian equilibrium as it has been applied in the literature on implicit contracts, principal-agent problems and bidding and auction models.