Balanced-Budget Mechanisms with Incomplete Information

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. © This document is copyrighted by the authors. You may freely reproduce and distribute it electronically or in print, provided it is distributed in its entirety, including this copyright notice. * We are grateful to Jacques Crémer for helpful comments, Pietro Veronesi for careful proofreading, and National Science Foundation Grants SBR 92-23320, 93-20695, and (Eric’s) for financial support, ** Departments of Economics, Harvard, UCLA and Harvard.