INFORMATION SPILLOVERS, GAINS FROM TRADE, AND INTERVENTIONS IN FROZEN MARKETS

Braz Camargo (), Kyungmin (Teddy) Kim and Benjamin Lester

No 16-28, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We study government interventions in markets suffering from adverse selection. Importantly, asymmetric information prevents both the realization of gains from trade and the production of information that is valuable to other market participants. We find a fundamental tension in maximizing welfare: While some intervention is required to restore trading, too much intervention depletes trade of its informational content. We characterize the optimal policy that balances these two considerations and explore how it depends on features of the environment. Our model can be used to study a program introduced in 2009 to restore information production in the market for legacy assets

Keywords: government policy; Government Intervention (search for similar items in EconPapers)
Pages: 65 pages
Date: 2016-11-03
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Information Spillovers, Gains from Trade, and Interventions in Frozen Markets (2016)
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