Markets with Within-Type Adverse Selection
- (pp. 699-726)
Abstract
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.Citation
Nguyen, Anh, and Teck Yong Tan. 2023. "Markets with Within-Type Adverse Selection." American Economic Journal: Microeconomics, 15 (2): 699-726. DOI: 10.1257/mic.20210112Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- L15 Information and Product Quality; Standardization and Compatibility
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