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Informed Principal Problems in Bilateral Trading

Takeshi Nishimura

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Abstract: We study the informed principal problems in a bilateral trade environment where both seller and buyer have private information about the types affecting their interdependent valuations. The seller has full bargaining power to offer a trading mechanism. We refine equilibria by the intuitive criterion. To eliminate each unintuitive equilibrium, we design an indirect mechanism that elicits both parties' common knowledge of the buyer's off-path belief after the mechanism itself is offered. The mechanism uses the elicited belief to decide what allocation is fully implemented. We characterize both parties' interim payoff vectors in intuitive equilibria. The result implies the uniqueness of the seller's payoff vector.

Date: 2019-06, Revised 2020-10
New Economics Papers: this item is included in nep-des and nep-mic
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Handle: RePEc:arx:papers:1906.10311