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Dynamic adverse selection with a patient seller

Juan Beccuti () and Marc Möller ()

Journal of Economic Theory, 2018, vol. 173, issue C, 95-117

Abstract: This paper considers dynamic bilateral trade with short-term commitment. We show that, when the seller is more patient than the buyer, there exist systematic differences between the optimal selling and renting mechanisms. While the former consists of simple price-posting, the latter induces the buyer to choose between a secure- and a random-delivery contract. Allowing for mechanisms more general than price-posting reduces the seller's cost of learning the buyer's valuation in the renting case. Renting leads to more learning than selling but (unless the horizon is sufficiently long) only when general mechanisms are available. Our results contrast with the common view that the restriction to price-posting is innocuous and that informational asymmetries are more persistent under renting than under selling.

Keywords: Dynamic adverse selection; Mechanism design; Price-posting (search for similar items in EconPapers)
JEL-codes: D42 D82 D86 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:173:y:2018:i:c:p:95-117

DOI: 10.1016/j.jet.2017.10.009

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