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Efficiency and information transmission in bilateral trading

Author

Listed:
  • Robert Shimer

    (University of Chicago)

  • Ivan Werning

    (MIT)

Abstract

We study pairwise trading mechanisms in the presence of one-sided or two-sided private information and two-sided limited commitment, whereby either trader can walk away from a proposed trade when he learns the trading price. We show that when one trader's information is relevant for the other trader's value of the asset, optimal trading arrangements may necessarily conceal the traders' information. While limited commitment itself may not be costly, it shapes how prices transmit information. (Copyright: Elsevier)

Suggested Citation

  • Robert Shimer & Ivan Werning, 2019. "Efficiency and information transmission in bilateral trading," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 154-176, July.
    • Handle: RePEc:red:issued:18-279
    DOI: 10.1016/j.red.2019.02.004
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    Cited by:

    1. Du, Songzi & Zhu, Haoxiang, 2017. "Bilateral trading in divisible double auctions," Journal of Economic Theory, Elsevier, vol. 167(C), pages 285-311.
    2. Benjamin Lester & Pierre-Olivier Weill & Ariel Zetlin-Jones, 2019. "RED Special Issue on Fragmented Financial Markets: An Introduction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 1-3, July.

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    More about this item

    Keywords

    Private information; Information diffusion; Learning from prices;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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