Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296415 
Year of Publication: 
2023
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 18 [Issue:] 1 [Year:] 2023 [Pages:] 421-461
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
With the goal of maximizing expected gains from trade, this paper analyzes the jointly optimal information structure and mechanism in a bilateral trade setting. The difference in gains from trade between the optimal information structure and first best constitutes the minimal loss due to asymmetric information. With binary underlying types it is shown that more than 95% of first best can be achieved while the optimal mechanism without information design may achieve less than 90% of first best. For more general type distributions, the optimal information structure is a monotone partition of the type space and the optimal mechanism is deterministic. Necessary conditions for the optimal information structure are derived and a closed form solution is given for the binary type case.
Subjects: 
Asymmetric information
bilateral trade
information design
JEL: 
D82
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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