Publication Type
Working Paper
Version
publishedVersion
Publication Date
8-2021
Abstract
This paper considers a bilateral-trade model with one-sided asymmetric information in which one agent (seller) initially owns an indivisible object and is fully informed of its value, while the other agent (buyer) intends to obtain the object whose value is unknown to himself. As Jehiel and Pauzner (2006) show that no mechanisms can generally result in efficient, voluntary bilateral trades, we aim to overturn this impossibility result by employing two-stage mechanisms (Mezzetti (2004)) in which first, the outcome (e.g., allocation of the goods) is determined, then the agents observe their own outcome-decision payoffs, and finally, transfers are made. We show that the generalized two-stage Groves mechanism induces efficient, voluntary bilateral trades. On the contrary, we also show by means of an example that the generalized two-stage Groves mechanism fails to achieve efficient, voluntary trades in a two-sided asymmetric information setup in which both parties have private information and each party’s valuation depends on the other’s information in the same way.
Keywords
bilateral trades, one-sided asymmetric information, two-stage mechanisms
Discipline
Economic Theory
Research Areas
Economic Theory
First Page
1
Last Page
26
Embargo Period
8-29-2021
Citation
KUNIMOTO, Takashi and ZHANG, Cuiling.
Efficient bilateral trade via two-stage mechanisms under one-sided asymmetric information. (2021). 1-26.
Available at: https://ink.library.smu.edu.sg/soe_working_paper/8
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.