Simultaneous Search and Adverse Selection

Sarah Auster, Piero Gottardi and Ronald Wolthoff

The Review of Economic Studies, 2025, vol. 92, issue 6, 3541-3573

Abstract: We study the effect of diminishing search frictions in markets with adverse selection 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 equilibria obtain only if adverse selection is sufficiently severe. When this condition fails, equilibria feature partial pooling and multiple equilibria co-exist. We show that facilitating contacts can lead to a reduction in welfare. In the limit, as the number of contacts becomes large, some of the equilibria converge to the competitive outcomes of Akerlof, 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 that have made meetings easier.

Keywords: Search frictions; Information frictions; Adverse selection; Efficiency; Welfare (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdaf014 (application/pdf)
Access to full text is restricted to subscribers.

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)
Working Paper: Simultaneous Search and Adverse Selection (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:92:y:2025:i:6:p:3541-3573.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().