No trade
Juan D. Carrillo and
Thomas Palfrey
Games and Economic Behavior, 2011, vol. 71, issue 1, 66-87
Abstract:
We investigate a common value bilateral bargaining model with two-sided private information and no aggregate uncertainty. A seller owns an asset whose common valuation is a deterministic function of the two traders' private signals. We first establish a no-trade theorem for this environment, and proceed to study the effect of the asset valuation structure and the trading mechanism on extent to which asymmetric information induces individuals to engage in mutually unprofitable exchange. A laboratory experiment is conducted, where trade is found to occur between 19% and 35% of the time, and this depends in systematic ways on both the asset valuation function and the trading mechanism. Both buyers and sellers adapt their strategy to changes in the asset valuation function and to changes in the trading mechanism in clearly identifiable ways. An equilibrium model with naïve belief formation accounts for some of the behavioral findings, but open questions remain.
Keywords: Bilateral; bargaining; Common; values; Private; information; No-trade; theorem; Laboratory; experiment (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899-8256(10)00146-6
Full text for ScienceDirect subscribers only
Related works:
Working Paper: No Trade (2008) 
Working Paper: No Trade (2007) 
Working Paper: No Trade (2007) 
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:gamebe:v:71:y:2011:i:1:p:66-87
Access Statistics for this article
Games and Economic Behavior is currently edited by E. Kalai
More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().