 Bilateral trade with strategic gradual learningKfir Eliaz and Alexander Frug Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra Abstract: We propose and analyze a model of bilateral trade in which private information about the quality of an asset can be acquired only gradually over time.An asset is characterized by a vector of binary i.i.d. attributes. The value of this asset to the seller and buyer is a weighted sum of the attributes, where the buyerís weights di§er from the seller's. Initially, the seller is uninformed about the quality of the asset. In each period he decides whether to make a price offer (based on his current information) or to inspect the asset (postponing the sales offer). In the latter case, he chooses an attribute and costlessly learns its realization.The buyer does not observe the realized attributes before purchasing the good, however, he may or may not observe which inspections were performed by the seller (we consider both cases). We study the seller's strategic scheduling of inspections in this environment and its effect on the realized gains from trade in equilibrium. We identify the necessary and sufficient conditions under which the players can realize some gains from trade, and all gains from trade. Date: 2016-07, Revised 2017-09 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1543 Access Statistics for this paper More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra |
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