Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2000-12-05
Number: 00-109/1
Author-Name: Maarten C.W. Janssen
Author-Email: janssen@few.eur.nl
Author-Name: Vladimir Karamychev
Author-Email: karamychev@few.eur.nl
Author-Workplace-Name: Erasmus University Rotterdam
Title: Continuous Time Trading in Markets with Adverse Selection
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.
Classification-JEL: D82
Keywords: Dynamic Trading; Asymmetric Information; Entry; Durable Goods
File-Url: https://papers.tinbergen.nl/00109.pdf
File-Format: application/pdf
File-Size: 221592 bytes
Handle: RePEc:tin:wpaper:20000109