Efficiency and Information Transmission in Bilateral Trading
We study pairwise trading mechanisms in the presence of private information and 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.
Document Object Identifier (DOI): 10.3386/w21495
Published: Robert Shimer & Iván Werning, 2019. "Efficiency and Information Transmission in Bilateral Trading," Review of Economic Dynamics, .
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