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Bilateral trade with strategic gradual learning

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  • Eliaz, Kfir
  • Frug, Alexander

Abstract

We propose a model of bilateral trade in which private information about the quality of an asset can be acquired only gradually over time. An asset is characterized by a vector of binary i.i.d. attributes, and its worth to a player is equal to a weighted sum of the attributes' values (where weights differ across players). The seller is initially uninformed about the attributes' values, and each period he decides whether to make a price offer or to costlessly inspect an attribute's value. The buyer does not know the attributes' values, but he may or may not observe which inspections were performed (we consider both cases). We study the seller's strategic scheduling of inspections and its effect on the realized gains from trade in equilibrium. We identify the necessary and sufficient conditions under which the players can realize some gains from trade, and all gains from trade.

Suggested Citation

  • Eliaz, Kfir & Frug, Alexander, 2018. "Bilateral trade with strategic gradual learning," Games and Economic Behavior, Elsevier, vol. 107(C), pages 380-395.
    • Handle: RePEc:eee:gamebe:v:107:y:2018:i:c:p:380-395
    DOI: 10.1016/j.geb.2017.10.026
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    1. Patrick Bolton & Antoine Faure-Grimaud, 2010. "Satisficing Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 937-971.
    2. Frug, Alexander, 2018. "Strategic gradual learning and information transmission," Journal of Economic Theory, Elsevier, vol. 177(C), pages 594-615.
    3. Levin, Jonathan, 2001. "Information and the Market for Lemons," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 657-666, Winter.
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    5. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
    6. Ilan Guttman & Ilan Kremer & Andrzej Skrzypacz, 2014. "Not Only What but Also When: A Theory of Dynamic Voluntary Disclosure," American Economic Review, American Economic Association, vol. 104(8), pages 2400-2420, August.
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    Cited by:

    1. Frug, Alexander, 2018. "Strategic gradual learning and information transmission," Journal of Economic Theory, Elsevier, vol. 177(C), pages 594-615.

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    More about this item

    Keywords

    Strategic scheduling; Gradual learning; Endogenous asymmetric information; Gains from trade;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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