Equilibrium in a decentralized market with adverse selection

Max R. Blouin

Economic Theory, 2003, vol. 22, issue 2, 245-262

Abstract: This paper deals with trade volume and distribution of surplus in markets subject to adverse selection. In a model where two qualities of a good exist, I show that if trade is decentralized (i.e. conducted via random pairwise meetings of agents), then all units of the good are traded, and all agents have positive ex-ante expected payoffs. This feature is present regardless of the quality distribution, and persists in the limit as discounting is made negligible. This offers a sharp contrast to models of centralized trade with adverse selection (Akerlof, Wilson). Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: Keywords and Phrases:Adverse selection; Lemons; Pairwise meetings; Decentralized trading.; JEL Classification Numbers:C73; D82. (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (23)

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DOI: 10.1007/s00199-002-0294-7

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