Daniil Larionov, University of Münster

"Bilateral Trade with Costly Information Acquisition"

Abstract

We study a bilateral trade problem with flexible but costly information acquisition. There is a buyer and a seller who can trade a single unit of a good through an intermediary who designs a mechanism to facilitate their trade. In the beginning, the buyer, the seller and the intermediary share a common prior over a finite set of states of the world. The intermediary proposes a mechanism to the players, who can then acquire information about the true state by privately designing a signal device. We characterize the set of implementable allocations and information structures. Using the implementability conditions, given by a finite-dimensional system of equations and inequalities, we show that an information structure is consistent with allocational efficiency if and only if it is induced by perfectly correlated signals.

Contact person: Egor Starkov