Locally robust implementation of efficient bilateral trade with correlated beliefs

Takashi Kunimoto and Cuiling Zhang
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Takashi Kunimoto: School of Economics, Singapore Management University
Cuiling Zhang: School of Economics, Singapore Management University

No 09-2026, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: We identify the ex ante welfare (EAW) condition as a necessary requirement to implement ex post efficient bilateral trade in any finite type space with interdependent values and correlated beliefs. As these finite settings become finer to approximate a continuous type space, we derive a limit EAW condition by taking the EAW condition in finite settings to its limit. We show that this limit condition trivially holds in the benchmark continuous setting admitting a full-support density function. We then insist on locally robust implementation by requiring efficient trade to be implemented uniformly across all finite type spaces that approximate the benchmark continuous type space. Our main result shows that under high interdependence, locally robust implementation of efficient trade is impossible. We thus show that the negative results of Myerson and Satterthwaite (1983) and Fieseler, Kittsteiner, and Moldovanu (2003) under independent beliefs can also emerge as the robust limit of discrete environments even when beliefs are correlated.

Keywords: bilateral trade; the ex ante welfare condition; interdependence; correlation. (search for similar items in EconPapers)
JEL-codes: C72 D78 D82 (search for similar items in EconPapers)
Pages: 32
Date: 2026-07
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