Screening and Adverse Selection in Frictional Markets

Benjamin Lester, Ali Shourideh, Venky Venkateswaran and Ariel Zetlin-Jones

No 17-35, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We incorporate a search-theoretic model of imperfect competition into a standard model of asymmetric information with unrestricted contracts. We characterize the unique equilibrium, and use our characterization to explore the interaction between adverse selection, screening, and imperfect competition. We show that the relationship between an agent?s type, the quantity he trades, and the price he pays is jointly determined by the severity of adverse selection and the concentration of market power. Therefore, quantifying the effects of adverse selection requires controlling for market structure. We also show that increasing competition and reducing informational asymmetries can decrease welfare.

Keywords: Adverse Selection; Imperfect Competition; Screening; Transparency; Search Theory (search for similar items in EconPapers)
JEL-codes: D41 D42 D43 D82 D83 D86 L13 (search for similar items in EconPapers)
Pages: 90 pages
Date: 2017-10-10
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Screening and Adverse Selection in Frictional Markets (2019)
Working Paper: Screening and adverse selection in frictional markets (2016)
Working Paper: Screening and Adverse Selection in Frictional Markets (2016)
Working Paper: Screening and Adverse Selection in Frictional Markets (2015)
Working Paper: Screening and Adverse Selection in Frictional Markets (2015)
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