Efficient Bilateral Trade

Posted: 2 Jun 2014

Date Written: May 31, 2014

Abstract

We re-examine the canonical question of Myerson and Satterthwaite (1983) whether two privately-informed parties, a buyer and a seller, can trade an indivisible good efficiently. We relax their assumption that utilities are quasi-linear; our main assumption instead is that the traded good is normal. We show that efficient trade is possible if agents’ utility functions are not too responsive to private information. In addition, we provide natural examples in which efficient trade is possible even though agents’ utility functions are highly responsive to their private information.

Suggested Citation

Garratt, Rodney and Pycia, Marek, Efficient Bilateral Trade (May 31, 2014). Available at SSRN: https://ssrn.com/abstract=2444279

Rodney Garratt

Independent ( email )

Marek Pycia (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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