A General Impossibility Theorem on Pareto Efficiency and Bayesian Incentive Compatibility

TL;DR

This paper proves a fundamental impossibility result in social choice theory, showing that any social choice function that is both Pareto efficient and Bayesian incentive compatible must be dictatorial, under broad conditions.

Contribution

It establishes a general impossibility theorem linking Pareto efficiency and Bayesian incentive compatibility without monetary transfers.

Findings

Ex ante Pareto efficiency and Bayesian incentive compatibility imply dictatorship.

The theorem applies to any number of agents and alternatives.

It holds under weak assumptions on the joint distribution of agents' types.

Abstract

This paper studies a general class of social choice problems in which agents' payoff functions (or types) are privately observable random variables, and monetary transfers are not available. We consider cardinal social choice functions which may respond to agents' preference intensities as well as preference rankings. We show that a social choice function is ex ante Pareto efficient and Bayesian incentive compatible if and only if it is dictatorial. The result holds for arbitrary numbers of agents and alternatives, and under a fairly weak assumption on the joint distribution of types, which allows for arbitrary correlations and asymmetries.