Efficient Bilateral Trade

We re-examine the canonical question of Myerson and Satterthwaite (1983) whether two privately-informed parties, a buyer and a seller, can trade an indivisible good efficiently. We relax their assumption that utilities are quasi-linear; our main assumption instead is that the traded good is normal. We show that efficient trade is possible if agents’ utility functions are not too responsive to private information. In addition, we provide natural examples in which efficient trade is possible even though agents’ utility functions are highly responsive to their private information.