The Downside of Asset Screening for Market Liquidity

Victoria Vanasco ()

Research Papers from Stanford University, Graduate School of Business

Abstract: This paper explores the tension between asset quality and liquidity in a model where an originator exerts effort to screen assets, whose cash flows can be later sold in secondary markets. Screening improves asset quality, but introduces a problem of asymmetric information that may hinder trade. In the optimal mechanism, costly retention of cash flows is essential to implement positive effort. Market allocations can feature too-much or too-little effort relative to the second best, where over-exertion comes with inefficiently illiquid markets. When gains from trade are large, markets are prone to multiple equilibria. The optimal mechanism is decentralized with differential retention rules and transfers across markets.

Date: 2016-04
New Economics Papers: this item is included in nep-mic and nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/417391
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/417391 [301 Moved Permanently]--> https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/417391)

Related works:
Journal Article: The Downside of Asset Screening for Market Liquidity (2017)
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:ecl:stabus:3424

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().