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American Economic Association, American Economic Journal: Microeconomics, 1(1), p. 182-206

DOI: 10.1257/mic.1.1.182

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Veto Constraint in Mechanism Design: Inefficiency with Correlated Types

Journal article published in 2009 by Olivier Compte, Philippe Jehiel
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This paper is available in a repository.

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Abstract

We consider bargaining problems in which parties have access to outside options, the size of the pie is commonly known and each party privately knows the realization of her outside option. We allow for correlations in the distributions of outside options. Parties have a veto right, which allows them to obtain at least their outside option payoff in any event. Besides, agents can receive no subsidy ex post. We show that inefficiencies are inevitable whatever the exact form of correlation, as long as private information is dispersed. We also illustrate how veto constraints differ from ex post participation constraints. (JEL C78, D82)