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A Unique Informationally Efficient Allocation Mechanism In Economies With Consumption Externalities

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Abstract

This article investigates the informational requirements of resource allocation processes in pure exchange economies with consumption externalities. It is shown that the distributive Lindahl mechanism has a minimal informational size of the message space, and thus it is informationally the most efficient allocation process that is informationally decentralized and realizes Pareto-efficient allocations over the class of economies that include nonmalevolent economies. Furthermore, it is shown that the distributive Lindahl mechanism is the unique informationally efficient decentralized mechanism that realizes Pareto-efficient and individually rational allocations over a certain class of nonmalevolent economies.

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