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Limelight on dark markets: theory and experimental evidence on liquidity and information

Listed author(s):
  • Aleksander Berentsen
  • Michael McBride
  • Guillaume Rocheteau

We investigate how informational frictions affect trading in decentralized markets in theory and in a laboratory setting. Subjects, matched pairwise at random, trade divisible commodities that have different private values for a divisible asset with a common value (interpreted as money). We compare a bargaining game with complete information with a bargaining game where agents can produce fraudulent assets at some cost and are privately informed about the quality of their assets. The threat of fraud strongly reduces the subjects' ability to exploit the gains from trade, it reduces significantly both the size of the trade and the acceptability of the asset, but only a small fraction of all assets are actually fraudulent.

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Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 126.

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Date of creation: Jun 2013
Date of revision: Apr 2015
Handle: RePEc:zur:econwp:126
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