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Efficient bilateral trade under mixed participation constraints

Author

Listed:
  • Liu, Bin

    (School of Management and Economics and Shenzhen Finance Institute, The Chinese University of Hong Kong, Shenzhen (CUHK-Shenzhen))

  • Lu, Jingfeng

    (Department of Economics, National University of Singapore)

  • Shi, Xianwen

    (Department of Economics, University of Toronto)

Abstract

We study efficient bilateral trade when the seller commits to participating before observing his private signal, whereas the buyer participates after observing hers. Allowing both parties' payoffs to depend on both signals, we characterize when ex post efficient trade is compatible with exact budget balance, Bayesian incentive compatibility, ex ante participation for the seller, and interim participation for the buyer. Feasibility depends on two forces: inframarginal gains from seller types for whom trade with the lowest buyer type yields strictly positive surplus, and the response of the seller's cost to the buyer's signal over the trading region. Under private values the second force vanishes and efficiency is always attainable, in contrast to the Myerson--Satterthwaite impossibility; with interdependent values, the characterization identifies exactly when this possibility fails. Without universal-trade seller types, a positive weighted cross-effect of the buyer's signal on the seller's cost rules out efficiency.

Suggested Citation

  • Liu, Bin & Lu, Jingfeng & Shi, Xianwen, 0. "Efficient bilateral trade under mixed participation constraints," Theoretical Economics, Econometric Society.
    • Handle: RePEc:the:publsh:7088
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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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