Interactive Communication in Bilateral Trade

Jieming Mao, Renato Paes Leme and Kangning Wang

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Abstract: We define a model of interactive communication where two agents with private types can exchange information before a game is played. The model contains Bayesian persuasion as a special case of a one-round communication protocol. We define message complexity corresponding to the minimum number of interactive rounds necessary to achieve the best possible outcome. Our main result is that for bilateral trade, agents don't stop talking until they reach an efficient outcome: Either agents achieve an efficient allocation in finitely many rounds of communication; or the optimal communication protocol has infinite number of rounds. We show an important class of bilateral trade settings where efficient allocation is achievable with a small number of rounds of communication.

Date: 2021-06
New Economics Papers: this item is included in nep-gth and nep-mic
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