Partnerships, lemons, and efficient trade

Karsten Fieseler, Thomas Kittsteiner, Benny Moldovanu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

45 Scopus citations

Abstract

We analyze the possibility of efficient trade with informationally interdependent valuations and with a dispersed ownership. A main role is played by the effects of adverse selection on incentive payments and budget constraints. Variations in the degree of interdependence directly influence the incentive payments and ultimately lead to a tightening or relaxation of the budget constraint, thus affecting the ability to achieve efficient trade. We derive precise possibility conditions for efficient trade, and we offer a framework in which the interplay of insights previously obtained by Akerlof (Quart. J. Econom. 89 (1970) 488), Myerson and Satterthwaite (J. Econom. Theory 28 (1983) 265), and Cramton et al. (Econometrica 55 (1987) 615) can be analyzed. In addition, we discuss to what extent possibility results previously obtained for private values environments can be generalized.

Original languageEnglish
Pages (from-to)223-234
Number of pages12
JournalJournal of Economic Theory
Volume113
Issue number2
DOIs
StatePublished - Dec 2003
Externally publishedYes

Funding

FundersFunder number
Deutsche ForschungsgemeinschaftSFB 504

    Keywords

    • Efficient trade
    • Lemons
    • Partnerships

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