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Search With Adverse Selection

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  • Stephan Lauermann
  • Asher Wolinsky

Abstract

This paper analyzes a sequential search model with adverse selection. We study information aggregation by the price—how close the equilibrium prices are to the full‐information prices—when search frictions are small. We identify circumstances under which prices fail to aggregate information well even when search frictions are small. We trace this to a strong form of the winner's curse that is present in the sequential search model. The failure of information aggregation may result in inefficient allocations.

Suggested Citation

  • Stephan Lauermann & Asher Wolinsky, 2016. "Search With Adverse Selection," Econometrica, Econometric Society, vol. 84, pages 243-315, January.
    • Handle: RePEc:wly:emetrp:v:84:y:2016:i::p:243-315
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