Endogenous Lemon Markets: Risky Choices and Adverse Selection

• 成果类型: Article
• 署名作者: Lichtig, Avi; Weksler, Ran
• 署名单位: University of Bonn; University of Haifa
• 刊物名称: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
• ISSN/ISSBN: 1542-4766
• DOI: 10.1093/jeea/jvac041
• 发表日期: 2023
• 页码: 413-454
• 关键词: increasing risk; moral hazard; INFORMATION; disclosure; uncertainty; INVESTMENT; QUALITY

摘要

The severity of adverse selection depends, to a great extent, on the underlying distribution of the asset. This distribution is commonly modeled as exogenous; however, in many real-world applications, it is determined endogenously. A natural question in this context is whether one can predict the severity of the adverse selection problem in such environments. In this paper, we study a bilateral trade model in which the distribution of the asset is affected by pre-trade unobservable actions of the seller. Analyzing general trade mechanisms, we show that the seller's actions are characterized by a risk-seeking disposition. In addition, we show that (location-independent) riskier underlying distributions of the asset induce lower social welfare. That is, lemon markets arise endogenously in these environments.