Trading Dynamics in the Market for Lemons
نویسندگان
چکیده
We present a dynamic model of trading under adverse selection. A seller faces a sequence of randomly arriving buyers. Each buyer receives a noisy signal about the quality of the asset and offers a price. We show that there is generically a unique equilibrium and characterize the resulting trading dynamics. Buyers’ beliefs about the quality of the asset gradually increase or decrease over time, depending on the initial level. By encompassing various patterns of trading dynamics, our model broadens the applicability of dynamic adverse selection theory. We also demonstrate that improving asset transparency does not necessarily lead to gains in efficiency. JEL Classification Numbers: C73, C78, D82.
منابع مشابه
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