Efficiency and Information Transmission in Bilateral Trading

55 Pages Posted: 25 Aug 2015

See all articles by Robert Shimer

Robert Shimer

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Iván Werning

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2015

Abstract

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.

Suggested Citation

Shimer, Robert J. and Werning, Ivan, Efficiency and Information Transmission in Bilateral Trading (August 2015). NBER Working Paper No. w21495, Available at SSRN: https://ssrn.com/abstract=2649757

Robert J. Shimer (Contact Author)

University of Chicago - Department of Economics ( email )

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Ivan Werning

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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