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Decentralized trading with private information

  • Mikhail Golosov

    (MIT,)

  • Aleh Tsyvinski

    (Harvard)

  • Guido Lorenzoni

    (MIT)

We characterize an environment in which agents have private information and trade in decentralized markets. First, we show that all the useful information is learned in the long run. Second, we show that agents with private information receive rents, and the value of information is positive. This is in contrast to the classic analysis of Grossman and Stiglitz (1980) who show that in centralized markets with private information, the value of information is zero. Finally, we show that equilibrium allocations are efficient in the long run. We also provide characterization of the connection of volume to prices of assets.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 391.

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Date of creation: 2008
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Handle: RePEc:red:sed008:391
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/society.htm
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  1. Pierre-Olivier Weill & Dimitri Vayanos, 2007. "A Search-Based Theory of the On-the-Run Phenomenon," FMG Discussion Papers dp577, Financial Markets Group.
  2. Vayanos, Dimitri, 1998. "Transaction Costs and Asset Prices: A Dynamic Equilibrium Model," Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 1-58.
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  4. Darrell DUFFIE & Semyon MALAMUD & Gustavo MANSO, . "Information Percolation with Equilibrium Search Dynamics," Swiss Finance Institute Research Paper Series 09-02, Swiss Finance Institute.
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  6. Gale,Douglas, 2000. "Strategic Foundations of General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521644105, 1.
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  14. Michael Ostrovsky, 2012. "Information Aggregation in Dynamic Markets With Strategic Traders," Econometrica, Econometric Society, vol. 80(6), pages 2595-2647, November.
  15. Darrell Duffie & Gustavo Manso, 2007. "Information Percolation in Large Markets," American Economic Review, American Economic Association, vol. 97(2), pages 203-209, May.
  16. Ricardo Lagos & Guillaume Rocheteau, 2008. "Liquidity in asset markets with search frictions," Staff Report 408, Federal Reserve Bank of Minneapolis.
  17. Weill, Pierre-Olivier, 2008. "Liquidity premia in dynamic bargaining markets," Journal of Economic Theory, Elsevier, vol. 140(1), pages 66-96, May.
  18. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  19. Lagos, Ricardo, 2010. "Asset prices and liquidity in an exchange economy," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 913-930, November.
  20. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  23. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
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