Markets with Multidimensional Private Information

Robert Shimer and Veronica Guerrieri
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Veronica Guerrieri: University of Chicago

No 210, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper explores price formation in environments with multidimensional private information. Asset sellers are informed both about their need to raise cash and about the quality of the asset they are selling. Asset buyers have rational expectations about the distribution of assets for sale at different prices. Any equilibrium with trade involves partial pooling: identical assets sell for different prices, depending on the seller's need to raise cash; while conversely different assets sell for the same price. Sellers who set a higher price are less likely to succeed at selling. We find a simple condition under which a continuum of such equilibria exist. This condition admits the possibility that some assets are intrinsically worthless, in which case there is also an equilibrium with no trade. In general, the set of equilibria depends on the joint distribution of seller and asset characteristics, and not just the support of that distribution.

Date: 2013
New Economics Papers: this item is included in nep-cta and nep-mic
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Markets with Multidimensional Private Information (2018)
Working Paper: Markets with Multidimensional Private Information (2014)
Working Paper: Markets with Multidimensional Private Information (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:210

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