(Almost) efficient mechanisms for bilateral trading

Research output: Contribution to journalArticlepeer-review


We study the bilateral trade problem: one seller, one buyer and a single, indivisible item for sale. It is well known that there is no fully-efficient and incentive compatible mechanism for this problem that maintains a balanced budget. We design simple and robust mechanisms that obtain approximate efficiency with these properties. We show that even minimal use of statistical data can yield good approximation results. We then demonstrate how a mechanism for this simple bilateral-trade problem can be used as a “black-box” for constructing mechanisms in more general environments. Finally, we show that dominant-strategy incentive-compatible mechanisms cannot guarantee any constant-factor approximation to the optimal gains from trade.

Original languageAmerican English
Pages (from-to)369-383
Number of pages15
JournalGames and Economic Behavior
StatePublished - Nov 2021


  • Auctions
  • Bilateral trade
  • Budget balance
  • Double auctions
  • Mechanism design
  • Two-sided markets

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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