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Partnerships, Lemons and Efficient Trade

  • Fieseler, Karsten

    ()

    (Sonderforschungsbereich 504)

  • Kittsteiner, Thomas

    ()

    (Sonderforschungsbereich 504)

  • Moldovanu, Benny

    ()

    (Department of Economics, University of Mannheim, Germany)

We study the possibility of efficient trade with informationally interdependent valuations. In a model based on the bilateral trade situation studied in Myerson and Satterthwaite (1983) efficient trade is only possible in trivial cases where the seller's valuation always exceeds the buyer's valuation or vice versa. In contrast to Myerson and Satterthwaite's result, trade may not occur with probability one even though it is common knowledge that trade is always efficient. This generalizes the result of Akerlof (1970). We also analyze a generalization of the model in Cramton et al. (1987) where, ex-ante, the good is jointly owned by a partnership. In contrast to the private valuations case, we can not always find a partnership that can be dissolved efficiently. This break-down occurs even for valuation functions with arbitrary small common values components.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 99-71.

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Length: 26 pages
Date of creation: 15 Jul 1999
Date of revision:
Handle: RePEc:xrs:sfbmaa:99-71
Note: Fieseler, Kittsteiner, Moldovanu: Department of Economics, University of Mannheim, Seminargebäude A5, 68131 Mannheim, Germany. We are grateful to Jörg Nikutta and seminar participants at Mannheim for helpful comments. Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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  1. McAfee, R. Preston, 1991. "Efficient allocation with continuous quantities," Journal of Economic Theory, Elsevier, vol. 53(1), pages 51-74, February.
  2. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  3. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July.
  4. Partha Dasgupta & Eric Maskin, 2000. "Efficient Auctions," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 341-388.
  5. Gresik, Thomas A., 1991. "Ex ante incentive efficient trading mechanisms without the private valuation restriction," Journal of Economic Theory, Elsevier, vol. 55(1), pages 41-63, October.
  6. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  7. Peter Cramton & Robert Gibbons & Paul Klemperer, 1985. "Dissolving a Partnership Efficiently," Working papers 406, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Motty Perry & Philip J. Reny, 2002. "An Efficient Auction," Econometrica, Econometric Society, vol. 70(3), pages 1199-1212, May.
  9. Jehiel, Phillipe & Moldovanu, Benny, 1998. "Efficient Design with Interdependent Valuations," Sonderforschungsbereich 504 Publications 98-22, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  10. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  11. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
  12. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Makowski Louis & Mezzetti Claudio, 1994. "Bayesian and Weakly Robust First Best Mechanisms: Characterizations," Journal of Economic Theory, Elsevier, vol. 64(2), pages 500-519, December.
  14. Steven R. Williams, 1999. "A characterization of efficient, bayesian incentive compatible mechanisms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(1), pages 155-180.
  15. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
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