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Mechanisms for Repeated Trade †

Mechanisms for Repeated Trade † Abstract How does feasibility of efficient repeated trade depend on the features of the environment such as persistence of values, private information about their evolution, or trading frequency? We derive a necessary and sufficient condition for efficient, unsubsidized, and voluntary trade, which implies that efficient contracting requires sufficient congruence of expectations. This translates to bounds on persistence of values and on private information about their evolution, and distinguishes increasing patience from more frequent interaction; the latter need not facilitate efficiency even when the former does. We also discuss second-best mechanisms and extend the characterization to general dynamic collective choice problems. (JEL C73, D82, D86 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Mechanisms for Repeated Trade †

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Publisher
American Economic Association
Copyright
Copyright © 2015 by the American Economic Association
Subject
Articles
ISSN
1945-7685
eISSN
1945-7685
DOI
10.1257/mic.20140173
Publisher site
See Article on Publisher Site

Abstract

Abstract How does feasibility of efficient repeated trade depend on the features of the environment such as persistence of values, private information about their evolution, or trading frequency? We derive a necessary and sufficient condition for efficient, unsubsidized, and voluntary trade, which implies that efficient contracting requires sufficient congruence of expectations. This translates to bounds on persistence of values and on private information about their evolution, and distinguishes increasing patience from more frequent interaction; the latter need not facilitate efficiency even when the former does. We also discuss second-best mechanisms and extend the characterization to general dynamic collective choice problems. (JEL C73, D82, D86 )

Journal

American Economic Journal: Microeconomics – American Economic Association

Published: Nov 1, 2015

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