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Intermediating Adverse Selection

Author

Listed:
  • Vincent Glode

    (Wharton School)

  • Christian Opp

    (University of Pennsylvania)

Abstract

We propose a parsimonious model of over-the-counter trading under asymmetric information to study the presence of intermediary chains that stand between well informed parties and uninformed market participants. Multiple moderately informed intermediaries can fulfill an important economic role of "smoothing" adverse selection. Informed market participants may prefer to trade through these intermediary chains as they improve trade efficiency but also reduce the surplus accruing to uninformed traders. Our model makes novel predictions about optimal network formation when adverse selection problems impede the efficiency of trade.

Suggested Citation

  • Vincent Glode & Christian Opp, 2013. "Intermediating Adverse Selection," 2013 Meeting Papers 119, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:119
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    File URL: https://economicdynamics.org/meetpapers/2013/paper_119.pdf
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    Cited by:

    1. Donaldson, Jason & Micheler, Eva, 2016. "Resaleable debt and systemic risk," LSE Research Online Documents on Economics 66042, London School of Economics and Political Science, LSE Library.

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