Robust trading mechanisms with budget surplus and partial trade
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In a bilateral bargaining problem with private values, Hagerty and Rogerson (J Econ Theory 42(1):94–107, 1987) showed that essentially all dominant strategy incentive compatible, ex post individually rational, and budget balanced mechanisms are posted-price mechanisms, where a price is drawn from a distribution, and trade occurs if both players benefit from trading at this price. In this paper, we demonstrate a feasible bargaining mechanism that yields more ex ante gains from trade than any posted-price (budget balanced) mechanism.
KeywordsDominant strategy implementation Vickrey–Clarke–Groves mechanisms Bilateral bargaining Budget balancedness
JEL ClassificationC72 C78 D82
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