Efficiency With(out) Intermediation in Repeated Bilateral Trade

42 Pages Posted: 3 Dec 2019

See all articles by Rohit Lamba

Rohit Lamba

Pennsylvania State University - College of the Liberal Arts

Date Written: November 17, 2019

Abstract

This paper analyzes repeated version of the bilateral trade model where the independent payoff relevant private information of the buyer and the seller is correlated across time. Using this setup it makes the following five contributions. First, it derives necessary and sufficient conditions on the primitives of the model as to when efficiency can be attained under ex post budget balance and participation constraints. Second, in doing so, it introduces an intermediate notion of budget balance called interim budget balance that allows for the extension of liquidity but with participation constraints for the issuing authority, interpreted here as an intermediary). Third, it pins down the class of all possible mechanisms that can implement the efficient allocation with and without an intermediary. Fourth, it provides a foundation for the role of an intermediary in a dynamic mechanism design model under informational constraints. And, fifth, it argues for a careful interpretation of the "folk proposition" that less information is better for efficiency in dynamic mechanisms under ex post budget balance and observability of transfers.

Keywords: Dynamic mechanism design, Bilateral trade, Interim budget balance, Intermediation

JEL Classification: D82, D86, G21

Suggested Citation

Lamba, Rohit, Efficiency With(out) Intermediation in Repeated Bilateral Trade (November 17, 2019). Available at SSRN: https://ssrn.com/abstract=3488821 or http://dx.doi.org/10.2139/ssrn.3488821

Rohit Lamba (Contact Author)

Pennsylvania State University - College of the Liberal Arts ( email )

University Park, PA 16802-3306
United States

HOME PAGE: http://www.rohitlamba.com

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