Please click here if you are unable to view this page.
TOPIC:
BILATERAL TRADE WITH COSTLY INFORMATION ACQUISITION
ABSTRACT
We study a bilateral trade environment with flexible and costly information acquisition. A buyer and a seller trade a single indivisible good through an intermediary who designs the trading mechanism. Before participating, each party privately acquires information about the good’s quality by choosing a signal. We show that, in any allocationally efficient equilibrium of any bilateral trade mechanism, the equilibrium information structure exhibits common knowledge of beliefs. Our result thus strengthens the classical Akerlof-Myerson-Satterthwaite impossibility: efficiency in environments with flexible and costly information acquisition requires an extreme form of informational symmetry.
