Waiting for News in the Market for Lemons∗
نویسندگان
چکیده
We study a dynamic setting in which stochastic information about the value of a privately-informed seller’s asset is gradually revealed to a market of buyers. We characterize the unique equilibrium in a continuous-time framework. The equilibrium involves periods of no trade or market failure. The no-trade period ends in one of two ways: either enough good news arrives restoring confidence and markets re-open, or bad news arrives making buyers more pessimistic forcing market capitulation i.e., a partial sell-off of low-value assets. Reservation values arise endogenously from the option to sell in the future. Our model encompasses both lemons and signaling environments— in a dynamic setting with sufficiently informative news, the two environments have the same equilibrium structure. JEL Classification: C72, C73, D82, D83
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Waiting for News in the Market for Lemons, Supplemental material: Discrete-Time Appendix
The purpose of this supplement is to establish the strong connection between the continuous-time model of Daley and Green (2011) and a discrete-time analog. First, when time periods are short, there exists an equilibrium with nearly identical structure to Ξ(α, β) (the equilibrium of interest in Daley and Green (2011)). Second, this equilibrium is unique among stationary equilibria satisfying a ...
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