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Dynamic Adverse Selection and the Supply Size

Ennio Bilancini and Leonardo Boncinelli ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information while the realized distribution of qualities is public information. We show that in equilibrium all goods can be traded if the size of the supply is publicly available to market participants. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. We also identify circumstances under which only full trade equilibria exist. Further, we give conditions for full trade to obtain when the realized distribution of qualities is not public information and when new goods enter the market at later stages.

Keywords: dynamic adverse selection; supply size; frequency of exchanges; asymmetric information (search for similar items in EconPapers)
JEL-codes: D82 L15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
Date: 2014-04
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Related works:
Journal Article: Dynamic adverse selection and the supply size (2016) Downloads
Working Paper: Dynamic Adverse Selection and the Supply Size (2014) Downloads
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