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Efficient trading with nonlinear utility

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  • Lu, Hu
  • Wang, Yuntong

Abstract

In an environment in which agents have nonlinear utility and sufficiently asymmetric initial endowments, we show that efficient trading is achievable. This result is in contrast with Myerson and Satterthwaite (1983), which shows efficient trading is not possible if agents have linear utility and asymmetric initial endowments. Our result is also different from Cramton et al. (1987), in which they maintain the linear utility assumption as in Myerson and Satterthwaite but assume that traders' initial endowments are relatively symmetric.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 46 (2010)
Issue (Month): 4 (July)
Pages: 595-606

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Handle: RePEc:eee:mateco:v:46:y:2010:i:4:p:595-606

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Nonlinear utility Efficient trading Mechanism design;

References

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  1. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Cramton, Peter & Gibbons, Robert & Klemperer, Paul, 1987. "Dissolving a Partnership Efficiently," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 615-32, May.
  3. Lu, Hu & Robert, Jacques, 2001. "Optimal Trading Mechanisms with Ex Ante Unidentified Traders," Journal of Economic Theory, Elsevier, Elsevier, vol. 97(1), pages 50-80, March.
  4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 61-73, January.
  5. Gresik, Thomas A. & Satterthwaite, Mark A., 1989. "The rate at which a simple market converges to efficiency as the number of traders increases: An asymptotic result for optimal trading mechanisms," Journal of Economic Theory, Elsevier, Elsevier, vol. 48(1), pages 304-332, June.
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