A Mechanism-Design Approach to Speculative Trade
When 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.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 75 (2007)
Issue (Month): 3 (05)
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/
More information through EDIRC
|Order Information:|| Web: https://www.econometricsociety.org/publications/econometrica/access/ordering-back-issues Email: |
References listed on IDEAS
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, 2004.
"Contracting with Diversely Naïve Agents,"
122247000000000530, UCLA Department of Economics.
- Eliaz, Kfir & Spiegler, Ran, 2005.
CEPR Discussion Papers
5433, C.E.P.R. Discussion Papers.
- Pradeep Dubey, 1979.
"Price-Quantity Strategic Market Games,"
Cowles Foundation Discussion Papers
520, Cowles Foundation for Research in Economics, Yale University.
- Milgrom, Paul & Stokey, Nancy, 1982.
"Information, trade and common knowledge,"
Journal of Economic Theory,
Elsevier, vol. 26(1), pages 17-27, February.
- Roger B. Myerson & Mark A. Satterthwaite, 1981.
"Efficient Mechanisms for Bilateral Trading,"
469S, 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.
- Muhamet Yildiz, 2005.
"Wishful Thinking in Strategic Environments,"
NajEcon Working Paper Reviews
- Jeff Ely, 2003.
"Foundations of Dominant Strategy Mechanisms,"
Theory workshop papers
658612000000000064, UCLA Department of Economics.
- Jeffrey C. Ely & Kim-Sau Chung, 2004. "Foundations of Dominant Strategy Mechanisms," Econometric Society 2004 North American Summer Meetings 169, Econometric Society.
- Kim-Sau Chung & Jeffrey C. Ely, 2003. "Foundations of Dominant Strategy Mechanisms," Discussion Papers 1372, 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.
When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:75:y:2007:i:3:p:875-884. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.