Please note: I am doing a literature survey/review, and I would like references to published work.

I contend that if we are dealing with a resource allocation mechanism that allocates scarce resources to self-interested agents, we need to take this self-interest into account. Otherwise, the mechanism would be made worse off.

This seems intuitively true, but I am looking for any published work that argues the same.

  • $\begingroup$ To whoever down-voted, I would appreciate any constructive feedback on why this is a poor question, if it is. Thanks. $\endgroup$ – Joebevo Mar 30 at 3:44
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    $\begingroup$ I am not the downvoter, don't know her reasons, but to me the question seems vague. For example what exactly does "we need to" mean? In what context are you talking about resource allocation mechanisms? What does it mean that a "mechanism" is "made worse off"? $\endgroup$ – Giskard Mar 30 at 7:03
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    $\begingroup$ P.s.: You seem to have several questions with upvoted answers. Consider accepting some. $\endgroup$ – Giskard Mar 30 at 7:06
  • $\begingroup$ This question makes no sense. Who is "we" in "we need to take this..." Do you mean the mechanism itself or the "we" in "we are dealing with a..." and how in that case are "we" dealing with it, in what way? $\endgroup$ – Frank Apr 2 at 9:12
  • $\begingroup$ @Frank He means "we, the people who are analyzing the performance of the mechanism." There is some mechanism, like a market or an auction or a voting procedure, that allocates resources. Agents are self-interested, so they seek to maximize their welfare, possibly at the expense of other agents. All the way back to Cournot and Bertrand in the 1800's and Hurwicz in the 1900's, people have analyzed how people manipulate their behavior and information to make themselves better off at the expense of others, and at the expense of the performance of our institutions. $\endgroup$ – user26098 Apr 3 at 16:12

Perhaps you are thinking of mechanism design.

In the field of mechanism design, agents have private information about their motivations and preferences. They make reports to a central authority, who then must take an action: who gets a good, which firm gets the contract, and so on.

In many scenarios, agents will not be honest. If you and I are haggling, I will under-report my value to push the price down, and you will overstate your cost to push the price up. This results in inefficiency, since sometimes we fail to trade when it would have been socially optimal, if all the information were known. This leads to informational rents, where some agents do better simply because they have information unknown to other agents, but this benefit comes at a cost to social welfare.

Look up people like Myerson, Harsanyi, Alvin Roth, Mirlees, Spence, Akerlof, etc. There have been a ton of Nobel prizes for work in this field.

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