A Mechanism-Design Approach to Speculative Trade
AbstractWhen two parties have different prior beliefs about some future event, they can realize gains through speculative trade. Can these gains be realized when the parties' prior beliefs are not common knowledge? We examine a simple example in which two parties having heterogeneous prior beliefs, independently drawn from some distribution, bet on what future action one of them will choose. We define a notion of "constrained interim-efficient" best and ask whether they can be implemented in Bayesian equilibrium by some mechanism. Our main result establishes that as the costs of unilaterally manipulating the bet's outcome become more symmetric across states, implementation becomes easier. In particular, when these costs are equal in both states, implementation is possible for any distribution. Copyright The Econometric Society 2007.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by UCLA Department of Economics in its series Levine's Bibliography with number 784828000000000429.
Date of creation: 21 Nov 2005
Date of revision:
Contact details of provider:
Web page: http://www.dklevine.com/
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kfir Eliaz & Ran Spiegler, 2006.
"Contracting with Diversely Naive Agents,"
Review of Economic Studies,
Oxford University Press, vol. 73(3), pages 689-714.
- Roger B. Myerson & Mark A. Satterthwaite, 1981.
"Efficient Mechanisms for Bilateral Trading,"
469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
- Muhamet Yildiz, 2007.
"Wishful Thinking in Strategic Environments,"
Review of Economic Studies,
Oxford University Press, vol. 74(1), pages 319-344.
- Paul Milgrom & Nancy L.Stokey, 1979.
"Information, Trade, and Common Knowledge,"
377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Peter Cramton & Robert Gibbons & Paul Klemperer, 1987.
"Dissolving a Partnership Efficiently,"
Papers of Peter Cramton
87econ, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Allaz Blaise & Vila Jean-Luc, 1993. "Cournot Competition, Forward Markets and Efficiency," Journal of Economic Theory, Elsevier, vol. 59(1), pages 1-16, February.
- Kim-Sau Chung & Jeffrey C. Ely, 2003.
"Foundations of Dominant Strategy Mechanisms,"
1372, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Jeffrey C. Ely & Kim-Sau Chung, 2004. "Foundations of Dominant Strategy Mechanisms," Econometric Society 2004 North American Summer Meetings 169, Econometric Society.
- Jeff Ely, 2003. "Foundations of Dominant Strategy Mechanisms," Theory workshop papers 658612000000000064, UCLA Department of Economics.
- Eliaz, Kfir & Spiegler, Ran, 2005.
CEPR Discussion Papers
5433, C.E.P.R. Discussion Papers.
- Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January.
- Eliaz, K & Spiegler, R, 2009.
"Bargaining over bets,"
Open Access publications from University College London
http://discovery.ucl.ac.u, University College London.
- Angrisani Marco & Guarino Antonio & Huck Steffen & Larson Nathan C, 2011.
"No-Trade in the Laboratory,"
The B.E. Journal of Theoretical Economics,
De Gruyter, vol. 11(1), pages 1-58, April.
- Marco Angrisani & Antonio Guarino & Steffen Huck & Nathan Larson, 2008. "No-Trade in the Laboratory," WEF Working Papers 0045, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
- Marco Angrisani & Antonio Guarino & Steffen Huck & Nathan Larson, 2008. "No-Trade in the Laboratory," CESifo Working Paper Series 2436, CESifo Group Munich.
- Stefano Galavotti & Nozomu Muto & Daisuke Oyama, 2011. "On efficient partnership dissolution under ex post individual rationality," Economic Theory, Springer, vol. 48(1), pages 87-123, September.
- Mylovanov, Tymofiy & Tröger, Thomas, 2013. "Mechanism Design by an Informed Principal: The Quasi-Linear Private-Values Case," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 437, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Piero Gottardi & Jean Marc Tallon & Paolo Ghirardato, 2011.
Economics Working Papers
ECO2011/26, European University Institute.
- Piero Gottardi & Jean-Marc Tallon & Paolo Ghirardato, 2011. "Flexible contracts," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00429784, HAL.
- Piero Gottardi & Jean-Marc Tallon & Paolo Ghirardato, 2009. "Flexible contracts," Documents de travail du Centre d'Economie de la Sorbonne 09072, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- Piero Gottardi & Jean Marc Tallon & Paolo Ghirardato, 2010. "Flexible Contracts," CESifo Working Paper Series 2927, CESifo Group Munich.
- Piero Gottardi & Jean Marc Tallon & Paolo Ghirardato, 2009. "Flexible Contracts," Economics Working Papers ECO2009/34, European University Institute.
- Piero Gottardi & Jean-Marc Tallon & Paolo Ghirardato, 2009. "Flexible contracts," Carlo Alberto Notebooks 128, Collegio Carlo Alberto.
- Anja Sautmann, 2011. "Contracts for Agents with Biased Beliefs: Some Theory and an Experiment," Working Papers 2011-10, Brown University, Department of Economics.
- Rajiv Sethi & Muhamet Yildiz, 2009.
Economics Working Papers
0089, Institute for Advanced Study, School of Social Science.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine).
If references are entirely missing, you can add them using this form.