Peter Bardsley, University of Melbourne

Abstract

Mutually beneficial exchange is perhaps the most fundamental building block in the conceptual framework through which economists view the world. Yet simultaneous exchange is not entirely unproblematic. Unless the exchange is truly simultaneous, there is a risk that the person who first relinquishes control of their asset will be left with nothing the other person does not reciprocate. The institution of exchange requires a host of supporting institutions in order for us to be confident that it will work. We consider the possibility of simultaneous exchange of indivisible objects by strangers at a distance over an asynchronous communication network without the use of a trusted intermediary. We show that if there are positive gains from trade a cryptographic protocol can always be designed for which successful exchange is a subgame perfect equilibrium. This refines existing cryptographic results which do not impose any equilibrium requirement, and which break down under a range of parameter values.