Working Paper: NBER ID: w21495
Authors: Robert Shimer; Ivn Werning
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.
Keywords: Bilateral Trading; Information Transmission; Mechanism Design; Private Information
JEL Codes: D82; D83; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trading mechanisms (D47) | information revelation (D82) |
| trading mechanisms (D47) | trading efficiency (G14) |
| optimal trading arrangements (F13) | conceal traders' information (F10) |
| efficient trading arrangements (F15) | information revelation (D82) |
| lack of commitment (J22) | influence prices (E30) |
| ability to walk away from trade (F19) | efficiency of trade (F12) |
| optimal price (D41) | function of reported signals (L96) |