The broker-optimal bilateral trading mechanisms with linear contracts

Lijun Pan and Dazhong Wang

Economics Letters, 2021, vol. 208, issue C

Abstract: We introduce a linear contract to the bilateral trading model with a broker in Myerson and Satterthwaite (Section 5, 1983). Among all the incentive-compatible and individually rational direct bilateral trading mechanisms, we provide a characterization of the broker-optimal direct bilateral trading mechanisms when the buyer makes a non-negative cash payment. In the optimal mechanism, the buyer makes zerocash payment, and shares equity with the seller. This mechanism enables the broker to gain higher profits than that in Myerson and Satterthwaite (1983). A dominant strategy implementation is also proposed. We also discuss the optimal mechanism when the buyer is allowed to be subsidized.

Keywords: Bilateral trading mechanism; Linear contract; Incentive-compatibility; Optimal mechanism; Implementation (search for similar items in EconPapers)
JEL-codes: D47 D82 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176521003323
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:208:y:2021:i:c:s0165176521003323

DOI: 10.1016/j.econlet.2021.110055

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().