🤖 AI Summary
This paper investigates the decisive role of information structure in allocating transaction surplus in bilateral trade with interdependent valuations and adverse selection. Method: Using game-theoretic and mechanism-design approaches, we characterize necessary and sufficient conditions for the set of feasible payoff vectors and rigorously derive payment bounds under individual rationality and feasibility constraints. Contribution/Results: We establish, for the first time, that when the buyer is fully informed, she captures the entire transaction surplus; conversely, under three-party asymmetric information, the attainable payoff sets induced by distinct information structures coincide only in extreme cases—such as complete market collapse à la Akerlof’s “lemons” problem. These results delineate the fundamental limits of information design in mitigating adverse selection, thereby providing a theoretical benchmark and boundary criterion for optimal information structure design and market mechanism engineering.
📝 Abstract
A seller posts a price for a single object. The seller's and buyer's values may be interdependent. We characterize the set of payoff vectors across all information structures. Simple feasibility and individual-rationality constraints identify the payoff set. The buyer can obtain the entire surplus; often, other mechanisms cannot enlarge the payoff set. We also study payoffs when the buyer is more informed than the seller, and when the buyer is fully informed. All three payoff sets coincide (only) in notable special cases -- in particular, when there is complete breakdown in a ``lemons market'' with an uninformed seller and fully-informed buyer.
