EX ANTE INCENTIVE EFFICIENT TRADING MECHANISMS WITHOUT THE PRIVATE VALUATION RESTRICTION

The private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders. This paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities, and for bilateral trade markets establishes the impossibility of a first-best solution. Across a class of trading problems employing uniform priors and linear valuation structures, this paper also compares levels of market efficiency for varying numbers of traders. © 1991.