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Efficiency and Information Transmission in Bilateral Trading

Robert Shimer, Iván Werning

NBER Working Paper No. 21495
Issued in August 2015
NBER Program(s):The Asset Pricing Program, The Corporate Finance Program, The Economic Fluctuations and Growth Program

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.

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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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