Publication Type

Working Paper

Version

publishedVersion

Publication Date

8-2026

Abstract

Following Crémer and McLean (1985, 1988) for finite type spaces and McAfee and Reny (1992) for continuous ones, we establish two respective sufficient conditions for the existence of efficient, ex ante budget-balanced mechanisms satisfying Bayesian incentive compatibility (BIC) and interim individual rationality (IIR) in bilateral trade settings with interdependent values and correlated beliefs. We then utilize the ex ante welfare (EAW) condition proposed by Kunimoto and Zhang (2026), which is necessary for the stricter requirement of ex post budget balance. We prove that while the EAW condition is sufficient in a two-type model and generalizes existing conditions in the literature, it fails to guarantee sufficiency in more general settings. Furthermore, in a stylized two-type environment, we demonstrate that stronger positive belief correlation facilitates the existence of the desired mechanisms, whereas higher interdependence impedes it. This finding is consistent with Kunimoto and Zhang's (2026) result that, under high interdependence, the EAW condition fails in a finite type space that approximates the benchmark continuous type space.

Keywords

Bilateral Trade, Interdependence, Correlation

Discipline

Economics | International Economics

Research Areas

International Economics

First Page

1

Last Page

47

Publisher

SMU Economics and Statistics Working Paper Series, Paper No. 10-2026

City or Country

Singapore

Embargo Period

5-6-2024

Copyright Owner and License

Authors

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