Signaling in dynamic markets with adverse selection

Bruno Barsanetti and Braz Camargo

Journal of Economic Theory, 2022, vol. 206, issue C

Abstract: We study trade in dynamic decentralized markets with adverse selection. In contrast to the literature on the topic so far, we assume that the informed sellers make the offers so that signaling through prices is possible. We establish basic properties of equilibria, discuss the standard two-type case in detail, and then analyze the general finite-type case. We prove that market efficiency, measured by the maximum gains from trade in equilibrium, is invariant to trading frictions. Our analysis shows that screening and signaling lead to markedly different trading outcomes.

Keywords: Adverse selection; Signaling; Market efficiency; Trading frictions (search for similar items in EconPapers)
JEL-codes: D82 D83 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:206:y:2022:i:c:s002205312200148x

DOI: 10.1016/j.jet.2022.105558

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