Equilibrium In A Competitive Market With Heterogeneously Informed Traders
No 292677, SSRI Workshop Series from University of Wisconsin-Madison, Social Systems Research Institute
This paper models the adverse selection problem faced by a market maker trading with informed hedgers. When the market maker is able to quote arbitrary offer schedules there are instances of non-existence of a competitive equilibrium. When an equilibrium does exist, better-informed hedgers may impose a dissipative externality on the less well-informed. However, if the types of hedgers are sufficiently different, equilibrium will be the same as in the full information case.
Keywords: Research; Methods/; Statistical; Methods (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwssri:292677
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