We study bilateral trade with a seller owning multiple units of a good, where each unit is of binary quality. The seller privately knows her "type"—defined by the number of lemons that she own—and which units in her endowments are the lemons ("within-type adverse selection"). We characterize the set of informationally constrained Pareto optimal allocations and show that every such allocation must involve a trade characterized by a threshold λ∗, with types having less (more) than λ∗ units of lemons selling only their lemons (selling their entire endowment). We provide conditions for a distribution shift that give Pareto-improving allocations.
Nguyen, Anh, and Teck Yong Tan.
"Markets with Within-Type Adverse Selection."
American Economic Journal: Microeconomics,
Asymmetric and Private Information; Mechanism Design
Economics of Contract: Theory
Information and Product Quality; Standardization and Compatibility