Efficient bilateral trade with interdependent values: The use of two-stage mechanisms

Publication Type

Journal Article

Publication Date

2-2026

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 | International Economics

Research Areas

Applied Microeconomics

Publication

Journal of Mathematical Economics

Volume

122

First Page

1

Last Page

19

ISSN

0304-4068

Identifier

10.1016/j.jmateco.2025.103191

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jmateco.2025.103191

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