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Market Screening with Limited Records

Author

Listed:
  • Ayca Kaya

    (University of Miami)

  • Santanu Roy

    (Southern Methodist University)

Abstract

Markets differ in the availability of past trading records of their participants. In a repeated sale model with adverse selection, we study the impact of the availability of such records on trading outcomes. We consider regimes varying with respect to the length of the available records. We characterize a class of equilibria in which the record length has direct welfare implications via the market’s need to re-screen the seller, as well as indirect implications via the low quality seller’s incentives to mimic the high quality seller. As the record length increases, the market needs to re-screen less frequently, which improves efficiency. In turn, less frequent screening makes mimicking more attractive and limits the market’s ability to learn. These considerations lead to a non-monotonic relationship between record length and overall gains from trade.

Suggested Citation

  • Ayca Kaya & Santanu Roy, 2020. "Market Screening with Limited Records," Departmental Working Papers 2006, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:2006
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    References listed on IDEAS

    as
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    Cited by:

    1. Harry Pei, 2020. "Reputation Building under Observational Learning," Papers 2006.08068, arXiv.org, revised Nov 2020.
    2. Barsanetti, Bruno & Camargo, Braz, 2022. "Signaling in dynamic markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 206(C).
    3. Harry Pei, 2022. "Reputation Effects under Short Memories," Papers 2207.02744, arXiv.org, revised Jan 2023.

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    More about this item

    Keywords

    Repeated sales; adverse selection; lemons market; transparency; limited records.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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