Equilibrium in a decentralized market with adverse selection
AbstractThis paper deals with trade volume and distribution of surplus in markets subject to adverse selection. In a model where two qualities of a good exist, I show that if trade is decentralized (i.e. conducted via random pairwise meetings of agents), then all units of the good are traded, and all agents have positive ex-ante expected payoffs. This feature is present regardless of the quality distribution, and persists in the limit as discounting is made negligible. This offers a sharp contrast to models of centralized trade with adverse selection (Akerlof, Wilson). Copyright Springer-Verlag Berlin Heidelberg 2003
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 22 (2003)
Issue (Month): 2 (09)
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- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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- Braz Camargo & Benjamin Lester, 2011.
"Trading dynamics in decentralized markets with adverse selection,"
11-36, Federal Reserve Bank of Philadelphia.
- Ben Lester & Braz Camargo, 2011. "Trading Dynamics in Decentralized Markets with Adverse Selection," 2011 Meeting Papers 1300, Society for Economic Dynamics.
- Ben Lester & Braz Camargo, 2010. "Trading Dynamics in Decentralized Markets with Adverse Selection," 2010 Meeting Papers 488, Society for Economic Dynamics.
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- Daniel McFadden & Carlos Noton & Pau Olivella, 2012. "Remedies for Sick Insurance," Working Papers 620, Barcelona Graduate School of Economics.
- Daniel L. McFadden & Carlos E. Noton & Pau Olivella, 2012. "Remedies for Sick Insurance," NBER Working Papers 17938, National Bureau of Economic Research, Inc.
- Ponsatí, Clara & Sákovics, József, 2008. "Queues, not just mediocrity: Inefficiency in decentralized markets with vertical differentiation," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 998-1014, July.
- Clara Ponsati & József Sákovics, 2005. "Markets for professional services: queues and mediocrity," ESE Discussion Papers 133, Edinburgh School of Economics, University of Edinburgh.
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