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Decentralized trading with private information

  • Mikhail Golosov


  • Aleh Tsyvinski


  • Guido Lorenzoni


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
Date of revision:
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

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  1. Duffie, Darrell & Malamud, Semyon & Manso, Gustavo, 2010. "The relative contributions of private information sharing and public information releases to information aggregation," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1574-1601, July.
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  3. Fudenberg, Drew & Levine, David K., 1995. "Consistency and cautious fictitious play," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 1065-1089.
  4. Ricardo Lagos & Guillaume Rocheteau & Pierre-Olivier Weill, 2007. "Crashes and recoveries in illiquid markets," Working Paper 0708, Federal Reserve Bank of Cleveland.
  5. Gale,Douglas, 2000. "Strategic Foundations of General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521644105, November.
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  7. Ricardo Lagos & Guillaume Rocheteau, 2007. "Liquidity in asset markets with search frictions," Working Paper 0706, Federal Reserve Bank of Cleveland.
  8. Max R. Blouin & Roberto Serrano, 2001. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Review of Economic Studies, Oxford University Press, vol. 68(2), pages 323-346.
  9. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
  10. Lagos, Ricardo, 2010. "Asset prices and liquidity in an exchange economy," Journal of Monetary Economics, Elsevier, vol. 57(8), pages 913-930, November.
  11. Darrell Duffie & Semyon Malamud & Gustavo Manso, 2009. "Information Percolation With Equilibrium Search Dynamics," Econometrica, Econometric Society, vol. 77(5), pages 1513-1574, 09.
  12. Weill, Pierre-Olivier, 2008. "Liquidity premia in dynamic bargaining markets," Journal of Economic Theory, Elsevier, vol. 140(1), pages 66-96, May.
  13. Manuel Amador & Pierre Olivier Weill, 2008. "Learning from Prices: Public Communication and Welfare," 2008 Meeting Papers 390, Society for Economic Dynamics.
  14. Duffie, Darrell & Garleanu, Nicolae Bogdan & Pedersen, Lasse Heje, 2006. "Valuation in Over-the-Counter Markets," CEPR Discussion Papers 5491, C.E.P.R. Discussion Papers.
  15. Wolinsky, Asher, 1987. "Information Revelation in a Market with Pairwise Meetings," The Warwick Economics Research Paper Series (TWERPS) 284, University of Warwick, Department of Economics.
  16. Gale, Douglas, 1987. "Limit theorems for markets with sequential bargaining," Journal of Economic Theory, Elsevier, vol. 43(1), pages 20-54, October.
  17. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  18. Darrell Duffie & Nicolae Garleanu & Lasse Heje Pedersen, 2005. "Over-the-Counter Markets," Econometrica, Econometric Society, vol. 73(6), pages 1815-1847, November.
  19. Dimitri Vayanos, 1998. "Transaction costs and asset prices : a dynamic equilibrium model," LSE Research Online Documents on Economics 451, London School of Economics and Political Science, LSE Library.
  20. Guillaume Rocheteau, 2009. "A monetary approach to asset liquidity," Working Paper 0901, Federal Reserve Bank of Cleveland.
  21. Max Blouin & Roberto Serrano, 1998. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Working Papers 98-5, Brown University, Department of Economics, revised 10 Aug 1998.
  22. Ostrovsky, Michael, 2009. "Information Aggregation in Dynamic Markets with Strategic Traders," Research Papers 2053, Stanford University, Graduate School of Business.
  23. Darrell Duffie & Gustavo Manso, 2007. "Information Percolation in Large Markets," American Economic Review, American Economic Association, vol. 97(2), pages 203-209, May.
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