Efficient Bilateral Trade with Interdependent Values: The Use of Two-Stage Mechanisms

Takashi Kunimoto and Cuiling Zhang ()
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Cuiling Zhang: Singapore Management University

No 1-2025, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: Efficient, voluntary bilateral trades are generally not implementable in an interdependent values environment where agents’ information is ex ante symmetric (i.e., both parties have private information and each party’s valuation depends on the other’s information in the same way). Thus, we seek more positive results by employing two-stage mechanisms in which (i) the outcome (e.g., allocation of the goods) is determined first; (ii) the agents partially learn the state via their own outcome-decision payoffs; and (iii) transfers are finally made. We propose the approximate shoot-the-liar (AS) mechanism and generalized shoot-the-liar (GS) mechanism and identify mild conditions for each mechanism to have the desired properties. The AS mechanism ensures “approximately” efficient, voluntary trades. We also establish that if we ensure (exactly) efficient, voluntary trades, there is no loss of generality in focusing on the GS mechanism. We then identify a necessary and sufficient condition for the GS mechanism to implement efficient, voluntary trades.

Keywords: bilateral trade; interdependent values; two-stage mechanisms (search for similar items in EconPapers)
JEL-codes: C72 D78 D82 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025-01-01
New Economics Papers: this item is included in nep-des, nep-gth, nep-mic and nep-sea
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Working Paper: Efficient Bilateral Trade with Interdependent Values: The Use of Two-Stage Mechanisms (2020)
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