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Type | Working Paper |
Scope | Discipline-based scholarship |
Title | Efficient bilateral trade |
Organization Unit | |
Authors |
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Language |
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Institution | Centre for Economic Policy Research |
Series Name | CEPR Discussion Papers |
Number | 18188 |
ISSN | 0265-8003 |
Number of Pages | 40 |
Date | 2023 |
Abstract Text | Can two parties reach an ex-post Pareto efficient trade agreement? The importance of the question was elucidated by Coase (1960), and Myerson and Satterthwaite (1983) provided a commonly accepted negative answer that such agreement is impossible when the parties are privately informed. We show that this negative answer depends on the assumption of quasi-linear preferences: efficient trade is possible if risk- aversion or wealth effects are sufficiently large or if agents’ utility is not too responsive to private information. Under empirically-grounded specifications of risk aversion and elasticity of trade, two parties can trade efficiently despite substantial asymmetry of information. |
Official URL | https://cepr.org/publications/dp18188 |
Other Identification Number | merlin-id:24357 |
PDF File | Download from ZORA |
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