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Eventi del Dipartimento di Economia

26 ottobre 2021 ore 12:45 - 14:00
Aula seminari 3-e4sr03 (Roentgen 3rd floor)

Seminario (Joint with the Dipartimento di Scienze delle Decisioni)

Theory & Experiments Seminar Series

Time Trumps Quantity in the Market for Lemons

William Fuchs, McComb School of Business, UT Austin and UC3M


We consider a dynamic adverse selection model where the privately informed seller of a divisible asset can choose how much of the asset to sell at each point in time to a fringe of competitive buyers. With commitment to long term contracts delay and lower quantities are both equivalent ways to signal higher quality and only the discounted quantity traded is pinned down in equilibrium. With spot contracts and observable past trades we show that there is a unique path of trades in equilibrium which is fully separating. Irrespective of the horizon and the frequency of trades, the same welfare is attained by each type as in the commitment case. Furthermore, the timing of trades is the dominant way in which signaling takes place. In the limit, as trades can take place continuously, each type trades all of their asset at a unique point in time. When instead past trades are unobservable, the equilibrium depends on the horizon and frequency of trades. Yet, when trading can take place continuously (and only then), there is an equilibrium which coincides with the one with public histories and only time (delay) is used to signal higher quality.

For further information please contact: erika.somma@unibocconi.it

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