IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20000109.html
   My bibliography  Save this paper

Continuous Time Trading in Markets with Adverse Selection

Author

Listed:
  • Maarten C.W. Janssen
  • Vladimir Karamychev

    (Erasmus University Rotterdam)

Abstract

We investigate the nature of the adverse selection problem in a market for adurable goodwhere trading and entry of new buyers and sellers takes place in continuoustime. In thecontinuous time model equilibria with properties that are qualitativelydifferent from thestatic equilibria, emerge. Typically, in equilibria of the continuous timemodel sellers withhigher quality wait in order to sell and wait more than sellers of lower qualitydo. Amongother things, we show that for any distribution of quality there exist aninfinite number ofcyclical equilibria where all goods are traded within a finite time afterentering the market.This holds true even if the good is not perfectly durable or when buyers are notrisk-neutral.

Suggested Citation

  • Maarten C.W. Janssen & Vladimir Karamychev, 2000. "Continuous Time Trading in Markets with Adverse Selection," Tinbergen Institute Discussion Papers 00-109/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20000109
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/00109.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maarten C. W. Janssen & Vladimir A. Karamychev, 2002. "Cycles and multiple equilibria in the market for durable lemons," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(3), pages 579-601.
    2. Alessandro Lizzeri, 1999. "Information Revelation and Certification Intermediaries," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 214-231, Summer.
    3. Wilson, Charles A, 1979. "Equilibrium and Adverse Selection," American Economic Review, American Economic Association, vol. 69(2), pages 313-317, May.
    4. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    5. Charles Wilson, 1980. "The Nature of Equilibrium in Markets with Adverse Selection," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 108-130, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Maarten Janssen & Santanu Roy, 2004. "On durable goods markets with entry and adverse selection," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(3), pages 552-589, August.
    2. Anindya Ghose, 2005. "Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets," Working Papers 05-19, NET Institute, revised Oct 2005.
    3. Adriani, Fabrizio & Deidda, Luca G., 2009. "Price signaling and the strategic benefits of price rigidities," Games and Economic Behavior, Elsevier, vol. 67(2), pages 335-350, November.
    4. Daniel McFadden & Carlos Noton & Pau Olivella, "undated". "Remedies for Sick Insurance," Working Papers 620, Barcelona School of Economics.
    5. Maarten C. W. Janssen & Vladimir A. Karamychev, 2002. "Cycles and multiple equilibria in the market for durable lemons," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(3), pages 579-601.
    6. Adriani, Fabrizio & Deidda, Luca G., 2011. "Competition and the signaling role of prices," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 412-425, July.
    7. Helton Saulo & Jeremias Leao, 2011. "Equilibrium, Adverse Selection, and Statistical Distributions," Economics Bulletin, AccessEcon, vol. 31(3), pages 2066-2074.
    8. Santanu Roy, 2014. "Dynamic sorting in durable goods markets with buyer heterogeneity," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(3), pages 1010-1031, August.
    9. Dorothée Brécard, 2017. "Consumer misperception of eco-labels, green market structure and welfare," Journal of Regulatory Economics, Springer, vol. 51(3), pages 340-364, June.
    10. Blouin, Max R., 2003. "Quality undersupply and oversupply," Journal of Economic Theory, Elsevier, vol. 109(1), pages 130-139, March.
    11. Max Blouin, 2001. "Equilibrium in a Decentralized Market with Adverse Selection," Cahiers de recherche CREFE / CREFE Working Papers 128, CREFE, Université du Québec à Montréal, revised Mar 2001.
    12. Abhinay Muthoo & Suresh Mutuswami, 2011. "Imperfect Competition and Efficiency in Lemons Markets," Economic Journal, Royal Economic Society, vol. 121(552), pages 580-594, May.
    13. Izquierdo, Segismundo S. & Izquierdo, Luis R., 2007. "The impact of quality uncertainty without asymmetric information on market efficiency," Journal of Business Research, Elsevier, vol. 60(8), pages 858-867, August.
    14. Christian Pietro & Marco Maria Sorge, 2018. "Outside (option) in the orchard: lemons or peaches?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(4), pages 555-564, December.
    15. Pierre Fleckinger & Matthieu Glachant & Gabrielle Moineville, 2017. "Incentives for Quality in Friendly and Hostile Informational Environments," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 242-274, February.
    16. Dionne, Georges, 1998. "La mesure empirique des problèmes d’information," L'Actualité Economique, Société Canadienne de Science Economique, vol. 74(4), pages 585-606, décembre.
    17. Xujin Pu & Huanzhen Zhang, 2016. "Voluntary Certification of Agricultural Products in Competitive Markets: The Consideration of Boundedly Rational Consumers," Sustainability, MDPI, vol. 8(9), pages 1-13, September.
    18. Bilancini, Ennio & Boncinelli, Leonardo, 2016. "Dynamic adverse selection and the supply size," European Economic Review, Elsevier, vol. 83(C), pages 233-242.
    19. Yokessa, Maïmouna & Marette, Stéphan, 2019. "A Review of Eco-labels and their Economic Impact," International Review of Environmental and Resource Economics, now publishers, vol. 13(1-2), pages 119-163, April.
    20. Klaus Kultti & Eeva Mauring & Juuso Vanhala & Timo Vesala, 2015. "Adverse Selection In Dynamic Matching Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 67(2), pages 115-133, April.

    More about this item

    Keywords

    Dynamic Trading; Asymmetric Information; Entry; Durable Goods;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20000109. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.