Implementable and ex-post IR rules in bilateral trading with discrete values

János Flesch, Marc Schröder and Dries Vermeulen

Mathematical Social Sciences, 2016, vol. 84, issue C, 68-75

Abstract: We study bargaining problems between one buyer and one seller for a single object when each set of valuations is finite. We derive a necessary and sufficient condition for interim-implementable trading rules, analogous to the result in Myerson and Satterthwaite (1983), and a necessary condition for mechanisms that are free from ex post regret on and off equilibrium path. Based on these two theorems, our contribution is three-fold. First, we illustrate the results by means of three examples. Second, in contrast to the continuous model, there always exist strictly positive probability mass functions such that ex post efficiency and interim-implementability is feasible. Third, we show the difference between interim- and ex post-implementation. In the class of threshold trading rules, interim-implementation only precludes inefficient trade, while ex post-implementation is equivalent to posted price implementation.

Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:84:y:2016:i:c:p:68-75

DOI: 10.1016/j.mathsocsci.2016.08.003

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