Undefeated equilibria of the Shi-Trejos-Wright model under adverse selection

• 成果类型: Article
• 署名作者: Bajaj, Ayushi
• 署名单位: Monash University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2018.05.014
• 发表日期: 2018
• 页码: 957-986
• 关键词: Asymmetric information; signaling; search; Asset market

摘要

Decentralized markets where assets are useful as media of exchange are also usually subject to private information. To analyze the liquidity and prices of such assets, I adapt the Shi (1995), Trejos and Wright (1995) model with Lucas trees under adverse selection. While most studies focus on either a pooling or separating equilibrium, I apply the undefeated equilibrium refinement by Mailath et al. (1993) to make the selection based on fundamentals. Under pooling, the high-quality asset holder accepts a pooled price, and under separating signals quality through asset retention. Applying the refinement results in a regime switch from no-information (pooling) to information revelation (separating) following a negative shock to the quality or quantity of lemons. This change leads to a discontinuous fall in aggregate welfare. (C) 2018 Elsevier Inc. All rights reserved.