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T-Space at The University of Toronto Libraries >
Theoretical Economics >
Volume 2, Number 3 (September 2007) >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1807/10105

Title: Efficiency in repeated trade with hidden valuations
Authors: Susan Athey; Harvard University
David A. Miller; University of California, San Diego
Keywords: Repeated trade, Myerson-Satterthwaite Theorem, repeated games, private information, dynamic mechanism design, ex post incentive compatibility, budget balance
C72, C73, D82, L14
Issue Date: 5-Sep-2007
Publisher: Theoretical Economics
Citation: Theoretical Economics; Vol 2, No 3 (2007)
Abstract: [This item is a preserved copy. To view the original, visit http://econtheory.org/] We analyze the extent to which efficient trade is possible in an ongoing relationship between impatient agents with hidden valuations (i.i.d. over time), restricting attention to equilibria that satisfy ex post incentive constraints in each period. With ex ante budget balance, efficient trade can be supported in each period if the discount factor is at least one half. In contrast, when the budget must balance ex post, efficiency is not attainable, and furthermore for a wide range of probability distributions over their valuations, the traders can do no better than employing a posted price mechanism in each period. Between these extremes, we consider a "bank'' that allows the traders to accumulate budget imbalances over time, but only within a bounded range. We construct non-stationary equilibria that allow traders to receive payoffs that approach efficiency as their discount factor approaches one, while the bank earns exactly zero expected profits. For some probability distributions there exist equilibria that yield exactly efficient payoffs for the players and zero profits for the bank, but such equilibria require high discount factors.
URI: http://hdl.handle.net/1807/10105
Other Identifiers: http://econtheory.org/ojs/index.php/te/article/view/20070299
Rights: Authors who publish in <i>Theoretical Economics</i> will release their articles under the <a href="http://creativecommons.org/licenses/by-nc/2.5/">Creative Commons Attribution-NonCommercial license</a>. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given.
Appears in Collections:Volume 2, Number 3 (September 2007)

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