Efficient Bilateral Trade with Interdependent Values: The Use of Two-Stage Mechanisms
Takashi Kunimoto and
Cuiling Zhang ()
Additional contact information
Cuiling Zhang: School of Economics, Singapore Management University
No 14-2020, Economics and Statistics Working Papers from Singapore Management University, School of Economics
As eﬃcient, voluntary bilateral trades are generally not incentive compatible in an interdependent-value environment (Fieseler, Kittsteiner, Moldovanu (2003) and Gresik (1991)), we seek for more positive results by employing two-stage mechanisms (Mezzetti (2004)). We say that a two-stage mechanism satisﬁes incentive compatibility if the truth-telling in both stages constitutes an equilibrium strategy.First, we show by means of a stylized example that the generalized two-stage Groves mechanism never guarantees voluntary trade, while it satisﬁes eﬃciency and incentive compatibility. In a general environment, we next propose Assumption 1 under which there exists a two-stage incentive compatible mechanism implementing an eﬃcient, voluntary trade. Third, within the same example, we conﬁrm that our Assumption 1 is very weak because it holds as long as the buyer’s degree of interdependence of preferences is not too high relative to the seller’s counterpart. Finally, we show by the same example that if Assumption 1 is violated, our proposed two-stage mechanism fails to achieve voluntary trade.
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: 58 pages
New Economics Papers: this item is included in nep-des, nep-gth, nep-mic and nep-sea
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://ink.library.smu.edu.sg/soe_research/2378/ Full text (text/plain)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ris:smuesw:2020_014
Access Statistics for this paper
More papers in Economics and Statistics Working Papers from Singapore Management University, School of Economics 90 Stamford Road, Sigapore 178903. Contact information at EDIRC.
Bibliographic data for series maintained by Cheong Pei Qi ().