Multidimensional bargains and the desirability of ex post inefficiency

In multidimensional bargaining situations where individuals possess relevant private information, say about preferences, allocational efficiency is a central concern. Even if there is no squabbling over distribution—for example, if contingent commitments on allocations can be made before private information is secured—honest revelation comes only by sacrificing efficiency. Indeed, the incentive-compatible, second-best outcomes generally require that some allocations be off the contract curve (ex post inefficient). The potential for recontracting, by ruling out such inefficient allocations and the second-best equilibria they support, would hurt matters further.Support was received from the Decision, Risk and Management Science Program of the National Science Foundation. Rachel Algaze Croson provided able assistance; referees provided helpful comments.