Market Screening with Limited Records

Ayça Kaya and Santanu Roy

No 2006, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: Markets differ in the availability of past trading records of their participants. In a repeated sale model with adverse selection, we study the impact of the availability of such records on trading outcomes. We consider regimes varying with respect to the length of the available records. We characterize a class of equilibria in which the record length has direct welfare implications via the market’s need to re-screen the seller, as well as indirect implications via the low quality seller’s incentives to mimic the high quality seller. As the record length increases, the market needs to re-screen less frequently, which improves efficiency. In turn, less frequent screening makes mimicking more attractive and limits the market’s ability to learn. These considerations lead to a non-monotonic relationship between record length and overall gains from trade.

Keywords: Repeated sales; adverse selection; lemons market; transparency; limited records. (search for similar items in EconPapers)
JEL-codes: C73 D61 D82 (search for similar items in EconPapers)
Date: 2020-05
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Citations: View citations in EconPapers (2)

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Journal Article: Market screening with limited records (2022)
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