Informational Size and Incentive Compatibility

Richard P. McLean, Andrew Postlewaite
2001 Social Science Research Network  
We examine a general equilibrium model with asymmetrically informed agents. The presence of asymmetric information generally presents a conflict between incentive compatibility and Pareto efficiency. We present a notion of informational size and show that the conflict between incentive compatibility and efficiency can be made arbitrarily small if agents are of sufficiently small informational size.
doi:10.2139/ssrn.267768 fatcat:kqx63kon2jf63gq4bwdpfawt4e