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Dynamic adverse selection with a patient seller

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  • Beccuti, Juan
  • Möller, Marc

Abstract

This paper considers dynamic bilateral trade with short-term commitment. We show that, when the seller is more patient than the buyer, there exist systematic differences between the optimal selling and renting mechanisms. While the former consists of simple price-posting, the latter induces the buyer to choose between a secure- and a random-delivery contract. Allowing for mechanisms more general than price-posting reduces the seller's cost of learning the buyer's valuation in the renting case. Renting leads to more learning than selling but (unless the horizon is sufficiently long) only when general mechanisms are available. Our results contrast with the common view that the restriction to price-posting is innocuous and that informational asymmetries are more persistent under renting than under selling.

Suggested Citation

  • Beccuti, Juan & Möller, Marc, 2018. "Dynamic adverse selection with a patient seller," Journal of Economic Theory, Elsevier, vol. 173(C), pages 95-117.
  • Handle: RePEc:eee:jetheo:v:173:y:2018:i:c:p:95-117
    DOI: 10.1016/j.jet.2017.10.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Luigi Iovino & Mikhail Golosov, 2013. "Social Insurance, Information Revelation, and Lack of Commitment," 2013 Meeting Papers 1020, Society for Economic Dynamics.
    2. Juan Beccuti & Marc Moeller, 2019. "Screening by Mode of Trade," Diskussionsschriften dp1908, Universitaet Bern, Departement Volkswirtschaft.
    3. Doval, Laura & Skreta, Vasiliki, 2019. "Optimal mechanism for the sale of a durable good," CEPR Discussion Papers 13967, C.E.P.R. Discussion Papers.
    4. Juan Beccuti, 2020. "On the Optimality of Price-posting in Rental Markets," Diskussionsschriften dp2007, Universitaet Bern, Departement Volkswirtschaft.
    5. Gerardi, Dino, 2018. "Dynamic Contracting with Limited Commitment and the Ratchet Effect," CEPR Discussion Papers 12699, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Dynamic adverse selection; Mechanism design; Price-posting;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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