Markets with Multidimensional Private Information
AbstractThis paper explores price formation in environments with multidimensional private information. Asset sellers are informed both about their need to raise cash and about the quality of the asset they are selling. Asset buyers have rational expectations about the distribution of assets for sale at different prices. Any equilibrium with trade involves partial pooling: identical assets sell for different prices, depending on the seller's need to raise cash; while conversely different assets sell for the same price. Sellers who set a higher price are less likely to succeed at selling. We find a simple condition under which a continuum of such equilibria exist. This condition admits the possibility that some assets are intrinsically worthless, in which case there is also an equilibrium with no trade. In general, the set of equilibria depends on the joint distribution of seller and asset characteristics, and not just the support of that distribution.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 210.
Date of creation: 2013
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Other versions of this item:
- NEP-ALL-2013-09-26 (All new papers)
- NEP-CTA-2013-09-26 (Contract Theory & Applications)
- NEP-MIC-2013-09-26 (Microeconomics)
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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1402, Federal Reserve Bank of Dallas.
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