Decentralizing Allocation and Distribution by Separation with Information Transfers

Abstract

Governments often divide operations into separate branches that face different constraints and have limited information. Such separation is feasible if each can operate by solving a simple optimization problem using limited information without requiring game-theoretic calculations about others? actions. We specify two structures of one-way information transfers that allow this. For each structure, we present conditions for unified and decentralized decision-making to have identical outcomes. One of them corresponds to using a Samuelson aggregate welfare function that is not always fully efficient. We apply our results to several examples, including public goods and Ramsey pricing.