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Balanced-Budget Mechanisms with Incomplete Information

Drew Fudenberg, David K. Levine, and Eric Maskin

May 4, 1995

revised December 7, 1996

Abstract: We examine mechanism design with transferable utility and budget balance, using techniques we developed for the study of repeated games. We show that with independent types, budget balance does not limit the set of social choice functions that can be implemented. With correlated types and three or more players, budget balance is again not a constraint if no player has "too many" more possible types than any other player. Moreover, in the latter case, for generic probability distributions over types all social choice functions are implementable.