TY - JOUR
T1 - The rate at which a simple market converges to efficiency as the number of traders increases
T2 - An asymptotic result for optimal trading mechanisms
AU - Gresik, Thomas A.
AU - Satterthwaite, Mark A
N1 - Funding Information:
* The participants of the Economic Theory Workshop at the University of Chicago helped this research materially by discovering a serious error in an early version of this work. We give special thanks to Larry Jones, Ken Judd. Ehud Kalai, Isaac Melijkson. Roger Myerson, and Roger Koenker for their help. This material is based upon work supported by the National Science Foundation under Grants SOC-7907542 and SES-8520247, the Center for Advanced Study in Managerial Economics and Decision Sciences at the Kellogg School, and the Health Care Financing Administration through a grant to Northwestern’s Center for Health Services and Policy Research.
PY - 1989/6
Y1 - 1989/6
N2 - Private information in an independent, private-values market provides incentives to traders to manipulate equilibrium prices strategically. This strategic behavior precludes ex post efficient market performance. Increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders' bids and offers reveal. This paper shows that the expected inefficiency of optimally designed mechanisms, relative to ex post efficient allocations, decreases almost quadratically as the number of traders increases.
AB - Private information in an independent, private-values market provides incentives to traders to manipulate equilibrium prices strategically. This strategic behavior precludes ex post efficient market performance. Increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders' bids and offers reveal. This paper shows that the expected inefficiency of optimally designed mechanisms, relative to ex post efficient allocations, decreases almost quadratically as the number of traders increases.
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U2 - 10.1016/0022-0531(89)90128-2
DO - 10.1016/0022-0531(89)90128-2
M3 - Article
AN - SCOPUS:38249022350
VL - 48
SP - 304
EP - 332
JO - Journal of Economic Theory
JF - Journal of Economic Theory
SN - 0022-0531
IS - 1
ER -