Publication Type
Working Paper
Version
publishedVersion
Publication Date
6-2025
Abstract
Efficient, voluntary bilateral trades are generally not implementable in an interdependent values environment with two-sided asymmetric information. To obtain more positive results, we consider two-stage mechanisms in which (i) the outcome (e.g., allocation of the goods) is determined first; (ii) the agents partially learn the state via their own outcome-decision payoffs; and (iii) transfers are finally made. We propose the approximate shoot-the-liar (AS) mechanism and identify Assumption 1, under which “approximately” efficient, voluntary trades are implementable. We further illustrate the permissiveness of the assumption, and characterize it in terms of the nature of interdependence in valuation functions—delineating the boundary between when Assumption 1 holds and when it fails. Finally, we characterize the conditions under which “exactly” efficient, voluntary trades can be implemented using two-stage mechanisms.
Keywords
Bilateral trade, interdependent values, two-stage mechanisms
Discipline
Economic Theory
Research Areas
Economic Theory
First Page
1
Last Page
43
Publisher
SMU Economics and Statistics Working Paper Series, Paper No. 06-2025
Citation
KUNIMOTO, Takashi and ZHANG, Cuiling.
Efficient bilateral trade with interdependent values: The use of two-stage mechanisms. (2025). 1-43.
Available at: https://ink.library.smu.edu.sg/soe_research/2378
Creative Commons License
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