Efficient mechanisms for bilateral trading

Roger B. Myerson*, Mark A. Satterthwaite

*Corresponding author for this work

Research output: Contribution to journalArticle

1147 Scopus citations

Abstract

We consider bargaining problems between one buyer and one seller for a single object. The seller's valuation and the buyer's valuation for the object are assumed to be independent random variables, and each individual's valuation is unknown to the other. We characterize the set of allocation mechanisms that are Bayesian incentive compatible and individually rational, and show the general impossibility of ex post efficient mechanisms without outside subsidies. For a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade, and mechanisms that can maximize a broker's expected profit.

Original languageEnglish (US)
Pages (from-to)265-281
Number of pages17
JournalJournal of Economic Theory
Volume29
Issue number2
DOIs
StatePublished - Apr 1983

ASJC Scopus subject areas

  • Economics and Econometrics

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