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Decentralized trading with private information

Author

Listed:
  • Mikhail Golosov

    (MIT,)

  • Aleh Tsyvinski

    (Harvard)

  • Guido Lorenzoni

    (MIT)

Abstract

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.

Suggested Citation

  • Mikhail Golosov & Aleh Tsyvinski & Guido Lorenzoni, 2008. "Decentralized trading with private information," 2008 Meeting Papers 391, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:391
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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