Journal Article Efficient Collective Choice when Compensation is Possible Get access Theodore Groves Theodore Groves University of California, San Diego Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 2, April 1979, Pages 227–241, https://doi.org/10.2307/2297047 Published: 01 April 1979 Article history Received: 01 February 1978 Accepted: 01 October 1978 Published: 01 April 1979

The efficiency of market information for planning resource allocation in "real time" is explored. In each period resources are allocated as planning for the next period proceeds. Full optimality is not possible, even when maximum information is exchanged between firms and resource allocators, as the technologies of the firms are changing. The major result shows that market-type information such as demands and especially demand forecasts is as good as full technological information to exchange.

This paper analyzes the problem of inducing the members of an organization to behave as if they formed a team. Considered is a conglomerate-type organization consisting of a set of semi-autonomous subunits that are coordinated by the organization's head. The head's incentive problem is to choose a set of employee compensation rules that will induce his subunit managers to communicate accurate information and take optimal decisions. The main result exhibits a particular set of compensation rules, an optimal incentive structure, that leads to team behavior. Particular attention is directed to the informational aspects of the problem. An extended example of a resource allocation model is discussed and the optimal incentive structure is interpreted in terms of prices charged by the head for resources allocated to the subunits.

In our previous paper, "Optimal Allocation of Public Goods...," (1977) we presented a mechanism for determining efficient public goods allocations when preferences are unknown and consumers are free to misrepresent their demands for public goods. We proved the basic welfare theorem for this model: If consumers are competitive in markets for private goods and follow Nash behavior in their choice of demands to report to the mechanism, then equilibria will be Pareto optimal. In this paper we show this result is not vacuous by proving that an equilibria will be Pareto optimal. In this paper we show this result is not vacuous by proving that an equilibrium will exist for a wide class of economies. Our conditions are slightly stronger than those required to prove the existence of a Lindahl equilibrium. In order to rule out the possibility of bankruptcy, we assume additionally that at all Pareto optimal allocations, private goods consumption is bounded away from zero.

[This paper studies efficient resource allocation in a team consisting of a large number of firms and a resource allocator. We examine procedures based on a single demand message from the firms calculated using local information only. Our main result shows that for appropriately calculated demands, if firms are given (or "Grab") exactly what they demand until resources are exhausted and thereafter nothing, the per firm output converges, as the number of firms increases, to the maximal output obtainable using any decision rule including fully optimal ones requiring a complete exchange of all information. A similar result is also shown under stronger convexity conditions for demand messages defined by profit-maximizing under a (generally non-equilibrium) price system.]

Recent reforms of Chinese state-owned enterprises strengthened a nascent managerial labor market by incorporating incentives suggestive of competitive Western labor markets. Poorly performing firms were more likely to have a new manager selected by auction, to be required to post a higher security deposit, and to be subject to more frequent review of the manager's contract. Managers could, be, and were, fired for poor performance. Managerial pay was linked to the firm's sales and profits, and reform strengthened the profit link and weakened the sales link. Thus the economic reforms helped develop an improved system of managerial resource allocation responsive to market forces.