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Informed principal problems in bilateral trading

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  • Nishimura, Takeshi

Abstract

We study bilateral trade with interdependent values as an informed-principal problem. The mechanism-selection game has multiple equilibria that differ with respect to principal's payoff and trading surplus. We characterize the equilibrium that is worst for every type of principal, and characterize the conditions under which there are no equilibria with different payoffs for the principal. We also show that this is the unique equilibrium that survives the intuitive criterion.

Suggested Citation

  • Nishimura, Takeshi, 2022. "Informed principal problems in bilateral trading," Journal of Economic Theory, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:jetheo:v:204:y:2022:i:c:s0022053122000886
    DOI: 10.1016/j.jet.2022.105498
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    More about this item

    Keywords

    Informed principal; Bilateral trade; Interdependent values; Rothschild–Stiglitz–Wilson allocation; Intuitive criterion;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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