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Market Selection and Asymmetric Information

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  • George J. Mailath
  • Alvaro Sroni

Abstract

Do investors making complementary investments face the correct incentives, especially when they cannot contract with each other prior to their decisions? We present a two-sided matching model in which buyers and sellers make investments prior to matching. Once matched, buyer and seller bargain over the price, taking into account outside options. Efficient decisions can always be sustained in equilibrium. We characterize the inefficiencies that can arise in equilibrium, and show that equilibria will be constrained efficient. We also show that the degree of diversity in a large market has implications for the extent of any inefficiency.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • George J. Mailath & Alvaro Sroni, "undated". "Market Selection and Asymmetric Information," Penn CARESS Working Papers d50f0ddbbf9f79b6e05bb90a5, Penn Economics Department.
    • Handle: RePEc:cla:penntw:d50f0ddbbf9f79b6e05bb90a5d0d23c1
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    File URL: http://www.ssc.upenn.edu/~gmailath/wpapers/wpapers.html
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    Cited by:

    1. Hongjun Yan, 2008. "Natural Selection in Financial Markets: Does It Work?," Management Science, INFORMS, vol. 54(11), pages 1935-1950, November.
    2. Dindo, Pietro & Massari, Filippo, 2020. "The wisdom of the crowd in dynamic economies," Theoretical Economics, Econometric Society, vol. 15(4), November.
    3. Emanuela Sciubba, 2006. "The evolution of portfolio rules and the capital asset pricing model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(1), pages 123-150, September.
    4. Luo, Guo Ying, 2012. "Conservative traders, natural selection and market efficiency," Journal of Economic Theory, Elsevier, vol. 147(1), pages 310-335.
    5. Hongjun Yan, 2008. "Natural Selection in Financial Markets: Does It Work?," Management Science, INFORMS, vol. 54(11), pages 1935-1950, November.
    6. Kim Gannon & Hanzhe Zhang, 2020. "An Evolutionary Justification for Overconfidence," Economics Bulletin, AccessEcon, vol. 40(3), pages 2494-2504.
    7. Condie, Scott & Ganguli, Jayant, 2017. "The pricing effects of ambiguous private information," Journal of Economic Theory, Elsevier, vol. 172(C), pages 512-557.
    8. Dindo, Pietro, 2019. "Survival in speculative markets," Journal of Economic Theory, Elsevier, vol. 181(C), pages 1-43.
    9. repec:esx:essedp:720 is not listed on IDEAS
    10. Eugen Kovac, 2005. "Speculation and Survival in Financial Markets," CERGE-EI Working Papers wp276, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    11. Filippo Massari, 2021. "Price probabilities: a class of Bayesian and non-Bayesian prediction rules," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 133-166, July.
    12. Blume, Lawrence & Easley, David, 2009. "The market organism: Long-run survival in markets with heterogeneous traders," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1023-1035, May.
    13. Ganguli, Jayant & Condie, Scott, 2012. "The pricing effects of ambiguous private information," Economics Discussion Papers 5631, University of Essex, Department of Economics.
    14. Jayant V. Ganguli & Scott Condie, 2009. "The dynamics of partially-revealing rational expectations equilibria," 2009 Meeting Papers 1122, Society for Economic Dynamics.
    15. Darong Dai, 2014. "The Long-Run Behavior of Consumption and Wealth Dynamics in Complete Financial Market with Heterogeneous Investors," Journal of Applied Mathematics, Hindawi, vol. 2014, pages 1-16, July.

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