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Search, Liquidity, and Retention: Screening Multidimensional Private Information

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  • Basil Williams

Abstract

A large literature has shown that asset quality may be signaled by retention or, in a separate literature, screened by liquidity. I present a general framework to analyze both instruments, offering conditions that characterize which instrument will be used in equilibrium. I then expand the private information to include not only asset quality but also seller patience, showing that both retention and liquidity may be used to fully separate both dimensions of private information. The expanded model offers new predictions about how price, quantity, and liquidity covary with each other and with seller private information.

Suggested Citation

  • Basil Williams, 2021. "Search, Liquidity, and Retention: Screening Multidimensional Private Information," Journal of Political Economy, University of Chicago Press, vol. 129(5), pages 1487-1507.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/713099
    DOI: 10.1086/713099
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    Cited by:

    1. Auster, Sarah & Gottardi, Piero, 2024. "Sorting versus screening in decentralized markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 220(C).
    2. Albrecht, James & Cai, Xiaoming & Gautier, Pieter A. & Vroman, Susan, 2024. "Competitive Search with Private Information: Can Price Signal Quality?," IZA Discussion Papers 17246, Institute of Labor Economics (IZA).
    3. Gabrovski, Miroslav & Kospentaris, Ioannis, 2021. "Intermediation in over-the-counter markets with price transparency," Journal of Economic Theory, Elsevier, vol. 198(C).

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