Simultaneous Search and Adverse Selection

Sarah Auster (), Piero Gottardi and Ronald Wolthoff
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Sarah Auster: Department of Economics, University of Bonn

No 135, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study the effect of diminishing search frictions in markets with adverse selec-tion by presenting a model in which agents with private information can simultaneously contact multiple trading partners. We highlight a new trade-off: facilitating contacts reduces coordination frictions but also the ability to screen agents’ types. We find that, when agents can contact sufficiently many trading partners, fully separating equilib-ria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof (1970), including Pareto dominated ones; other pooling equilibria continue to feature frictional trade in the limit, where entry is inefficiently high. Our findings provide a basis to assess the effects of recent technological innovations which have made meetings easier.

Pages: 43 pages
Date: 2022-01
New Economics Papers: this item is included in nep-mic
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Citations: View citations in EconPapers (1)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_135_2022.pdf Second version, 2022 (application/pdf)

Related works:
Working Paper: Simultaneous Search and Adverse Selection (2024)
Working Paper: Simultaneous Search and Adverse Selection (2022)
Working Paper: Simultaneous Search and Adverse Selection (2022)
Working Paper: Simultaneous Search and Adverse Selection (2022)
Working Paper: Simultaneous Search and Adverse Selection (2022)
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