Journal Article Manipulation via Endowments Get access Andrew Postlewaite Andrew Postlewaite University of Illinois Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 2, April 1979, Pages 255–262, https://doi.org/10.2307/2297049 Published: 01 April 1979 Article history Received: 01 December 1976 Accepted: 01 August 1978 Published: 01 April 1979

AEJ Micro publishes papers focusing on microeconomic theory, industrial organization, and the microeconomic aspects of international trade, political economy, and finance. The journal will publish theoretical work as well as both empirical and experimental work with a theoretical framework.

Better-informed consumers may be treated preferentially by firms because their consumption serves as a quality signal for other customers. For normal goods this results in wealthy individuals being treated better than poor individuals. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. Consumers search for highquality firms and condition their choices on observed actions of other consumers. When they observe consumers who are more likely to have identified a high-quality firm, uninformed individuals will optimally emulate those consumers. One group of consumers arise endogenously as “leaders” whose consumption behavior is emulated. Follow-on sales induce firms to give preferential treatment to these lead consumers, which reinforces their learning. “One very clear impression I had of all the Beautiful People was their prudence. It may be that they paid for their own airline tickets but they paid for little else.” James Brady, Press Secretary to Ronald Reagan From Superchic, Little, Brown 1974

The authors provide conditions on an exchange economy with asymmetric information that guarantee that when the economy is replicated sufficiently often, there will be an allocation that is incentive compatible, individually rational, and nearly efficient. The main theorem covers both the case in which aggregate uncertainty remains when the economy is replicated and the case in which replication eliminates aggregate uncertainty. In addition, the authors demonstrate how their theorem does or does not apply to standard asymmetric information problems such as the buyer's bid double auction problem, Akerlof's lemons problem, and insurance with asymmetric information.

A yes or no decision must be made about some issue. All agents must agree. The “Coase Theorem” asserts that the efficient outcome will always result. Suppose the value (positive or negative) that an individual attaches to an affirmative decision is privately known to that individual. It is proved, under very mild conditions, that with independent types, as the number of agents increases, the probability of an affirmative efficient decision goes to zero. An example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given.

We introduce a distinction between a firm and its network of workers. In a competitive world, if networks are easily lured away, the workers must receive the entire value of their contribution to the firm. How then can service firms have equity value? A model is analysed in which workers are paid less as a group than their value, even in a competitive world. The workers are assumed to have a nonwage benefit for working at the current firm; this benefit is privately known. These privately known benefits make it impossible for the workers to agree on a division of their value should they leave the existing firm for a new enterprise. The result is that the workers may receive a total compensation that is less than their contribution to the firm.