Dynamic Adverse Selection and the Supply Size

In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information while the realized distribution of qualities is public information. We show that in equilibrium all goods can be traded if the size of the supply is publicly available to market participants. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. We also identify circumstances under which only full trade equilibria exist. Further, we give conditions for full trade to obtain when the realized distribution of qualities is not public information and when new goods enter the market at later stages

Strict Nash equilibria in large gameswith strict single crossing in types and actions

In this paper we study games where the space of player types is atomless, action spaces are second countable, and payoffs functions satisfy the property of strict single crossing in types and actions. Our main finding is that in this class of games every Nash equilibrium is essentially strict. We briefly develop and discuss the relevant consequences of our resul

Dynamic Adverse Selection and the Supply Size

In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information while the realized distribution of qualities is public information. We show that in equilibrium all goods can be traded if the size of the supply is publicly available to market participants. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. We also identify circumstances under which only full trade equilibria exist. Further, we give conditions for full trade to obtain when the realized distribution of qualities is not public information and when new goods enter the market at later stages

Social Coordination with Locally Observable Types

In this paper we study the typical dilemma of social coordination between a riskdominant convention and a payoff-dominant convention. In particular, we consider a model where a population of agents play a coordination game over time, choosing both the action and the network of agents with whom to interact. The main novelty with respect to the existing literature is that: (i) agents come in two distinct types, (ii) the interaction with a different type is costly, and (iii) an agent’s type is unobservable prior to interaction. We show that when the cost of interacting with a different type is small with respect to the payoff of coordination, then the payoff-dominant convention is the only stochastically stable convention; instead, when the cost of interacting with a different type is large, the only stochastically stable conventions are those where all agents of one type play the payoff-dominant action and all agents of the other type play the risk-dominant action

Dynamic Adverse Selection and the Size of the Informed Side of the Market

In this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller’s private information. We show that in equilibrium all goods can be traded if a simple piece of information is made publicly available: the size of the informed side of the market. Moreover, we show that if exchanges can take place frequently enough, then agents roughly enjoy the entire potential surplus from exchanges. We illustrate these findings with a dynamic model of trade where buyers and sellers repeatedly interact over time. More precisely we prove that, if the size of the informed side of the market is a public information at each trading stage, then there exists a weak perfect Bayesian equilibrium where all goods are sold in finite time and where the price and quality of traded goods are increasing over time. Moreover, we show that as the time between exchanges becomes arbitrarily small, full trade still obtains in finite time – i.e., all goods are actually traded in equilibrium – while total surplus from exchanges converges to the entire potential. These results suggest two policy interventions in markets suffering from dynamic adverse selection: first, the public disclosure of the size of the informed side of the market in each trading stage and, second, the increase of the frequency of trading stages

Single-Valuedness of the Demand Correspondence and Strict Convexity of Preferences: An Equivalence Result

If preferences are rational and continuous, then strict convexity implies that the demand correspondence is single-valued (e.g. Barten and Bohm¨ , 1982, lemma 7.3). We show that if, in addition, preferences are strictly monotone then the converse is also true, namely single-valuedness of the demand correspondence implies strict convexity of preferences

Small Noise in Signaling Selects Pooling on Minimum Signal

In this paper we study how the presence of a small amount of noise in signaling games impacts on the likelihood of separation and, hence, the likelihood of information transmission. We consider a variant of a standard signaling model where a source of exogenous noise affects the signals that agents observe. Noise, even if tiny, poses tight constraints on beliefs by making all signals possible along the equilibrium path. We show that separation cannot be obtained in equilibrium if the noise is small enough – but not nil. In particular, for any separating profile, if noise is sufficiently small then the sender has a profitable deviation consisting of a signal reduction. Instead, the pooling equilibrium where all sender’s types pool on the minimum signal always exists, independently of the level of noise. These results provide a new source of interest in pooling equilibria

Redistribution and the Notion of Social Status

In this paper we study the impact of redistributive policies when agents can signal their relative standing by spending on a conspicuous good. In particular, we analyze how the shape of the status function - i.e. how relative standing is computed and evaluated - may affect the equilibrium outcome of the model. Our main finding is that, if status depends in a cardinal way on individuals' relative standing, then a redistribution from the rich to the poor can be Pareto improving. We identify a necessary and suffcient condition for the latter case