Continuous Time Trading in Markets with Adverse Selection
AbstractWe investigate the nature of the adverse selection problem in a market for adurable goodwhere trading and entry of new buyers and sellers takes place in continuoustime. In thecontinuous time model equilibria with properties that are qualitativelydifferent from thestatic equilibria, emerge. Typically, in equilibria of the continuous timemodel sellers withhigher quality wait in order to sell and wait more than sellers of lower qualitydo. Amongother things, we show that for any distribution of quality there exist aninfinite number ofcyclical equilibria where all goods are traded within a finite time afterentering the market.This holds true even if the good is not perfectly durable or when buyers are notrisk-neutral.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-109/1.
Date of creation: 05 Dec 2000
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Dynamic Trading; Asymmetric Information; Entry; Durable Goods;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-02-08 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Tinbergen Institute Discussion Papers
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