partnerships lemons and efficient trade we analyze the possibility of efficient trade with informationally interdependent valuations and with a dispersed ownership a crucial role is played by the sign of the derivatives that measure how valuation functions depend on others signals if valuations are increasing functions of other agents signals it is more difficult to achieve efficient trade with interdependent values than with private values where the respective derivatives are zero in contrast if valuations are decreasing functions of other agents signals it is easier to achieve efficient trade with interdependent values our results unify and generalize the insights of cramton et al 1987 myerson and satterthwaite 1983 and akerlof 1970

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

ex ante incentive efficient trading mechanisms without the private valuation restriction abstract the private valuation assumption found in most trading mechanism design papers rules out markets whose valuation structure generates externalities between traders this paper characterizes the set of ex ante incentive efficient trading mechanisms for a large class of markets that do admit such externalities and for bilateral trade markets establishes the impossibility of a first best solution across a class of trading problems employing uniform priors and linear valuation structures this paper also compares levels of market efficiency for varying numbers of traders

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

property rights and efficiency of voluntary bargaining under asymmetric information we show that in public good problems under asymmetric information the success of voluntary bargaining is closely related to the structure of property rights we characterize property rights structures and mediated bargaining procedures that either lead to an efficient voluntary resolution to public good problems or achieve the efficient outcome but slightly coerce the agents into participation in this respect we identify efficient property rights structures in this paper we show that in public good problems under asymmetric information the success of any voluntary bargaining procedure is closely related to the structure of property rights in the economy for clarity of exposition we focus our attention on the following example in a town inhabited by n residents a firm is considering whether to operate a factory that generates pollution as an inevitable by product a higher level of production generates a correspondingly higher level of pollution the firm s profits are increasing with the level of production and the welfare of the residents is decreasing with the level of pollution the firm s profitability and residents preferences are assumed to be private information the structure of property rights specifies the level of pollution that the firm is entitled to emit into the environment for every such economy we describe and prove the existence of efficient property rights structures we characterize property rights structures and voluntary mediated bargaining procedures that maximize the sum of residents utilities and the firm s profit and thus lead to an efficient resolution to the public good problem furthermore we show that these efficient property rights structures are robust to changes in the underlying environment this suggests that the combination of efficiency minded legislation that would set the initial structure of property rights appropriately and a mediator who would base his recommendations on an efficient decision mechanism could facilitate the achievement of the efficient outcome under some circumstances however we show that the mediated voluntary bargaining procedure has to be replaced by compulsory arbitration that coerces agents into agreement we provide results that show that when the efficient property rights structure is adopted the degree of coercion that is necessary to obtain the efficient outcome is small thus in contrast to rob 1989 and mailath and postlewaite 1 our results apply to any public good problem where the costs and benefits of providing the public good are monotonically increasing in the level of provision and where some additional restrictions to be specified later are imposed on the form of the utility and profit functions and on the information structure

labour im mobility and monopsonistic exploitation of workers in the urban informal sector lessons from a field study it is well recognised in labour economics that employers in monopsonistic competition have market power to set wages below the productivity of workers if workers are immobile which causes monopsonistic exploitation of workers monopsonistic exploitation is propelled by employers expectations about the degree of im mobility of workers and therefore by ex post mobility of workers it hence begs a question of what determines the relative im mobility of informal workers which has significant implications for monopsonistic exploitation and working poverty in the urban informal sector from our field study of urban and peri urban labour markets in bangladesh by modifying the method of stochastic frontier analysis we explain the behavioural foundation to the relative im mobility of informal workers we thereby unravel the effects of individual and household characteristics sociological institutional factors and household ties including worker s kinship on the relative immobility of a worker that can in turn explain monopsonistic exploitation and working poverty widely prevalent in the urban informal sector of south asia

the relative contributions of private information sharing and public information releases to information aggregation we calculate learning rates when agents are informed through public and private observation of other agents actions we characterize the evolution of the distribution of posterior beliefs if the private learning channel is present convergence of the distribution of beliefs to the perfect information limit is exponential at a rate equal to the sum of the mean arrival rate of public information and the mean rate at which individual agents are randomly matched with other agents if however there is no private information sharing then convergence is exponential at a rate strictly lower than the mean arrival rate of public information c 2009 elsevier inc all rights reserved

technological leadership and persistence of monopoly under endogenous entry static versus dynamic analysis abstract we build a dynamic oligopoly model with endogenous entry in which a particular firm leader invests in an innovation process facing the subsequent entry of other firms followers we identify conditions that make it optimal for the leader in the initial oligopoly situation to undertake pre emptive r d investment strategic predation eventually resulting in the elimination of all followers compared to a static model the dynamic one provides new insights into the leader s intertemporal investment choice its optimal decision making and the dynamics of the market structure over time we also contrast the leader s investment decisions with those of the social planner

inflexible rules in incentive problems in practice contracts involve standard terms or rules allowing for variations only under exceptional circumstances we develop a simple model in which optimal contracts display this feature even in the absence of transactions costs rules arise when an agent has countervailing incentives to misrepresent private information these incentives are created by endowing the agent with a critical factor of production ex ante applications in regulatory labor and legal settings

matching markets with adverse selection abstract this paper considers a market with adverse selection in the spirit of rothschild and stiglitz quart j econ 90 1976 629 the major departure from existing approaches is that we model a decentralized market that is open ended and constantly refilled by new participants e g by new workers and firms in the case of a labor market the major novelty of this approach is that the distribution of types in the market becomes an endogenous variable which is jointly determined with equilibrium contracts as frictions become small we show that the least cost separating contracts are always supported as an equilibrium outcome regardless of the distribution of types among entrants moreover we derive conditions under which this outcome is also unique

bargaining and markets complexity and the competitive outcome abstract rubinstein and wolinsky rev econ stud 57 1990 63 78 consider a simple decentralised market game in which agents meet randomly or voluntarily and bargain over the terms of trade they show that any individually rational price can be sustained as a sequential equilibrium even though the model has a unique competitive outcome here i consider rubinstein and wolinsky s model and show that if complexity costs of implementing strategies enter players preferences together with the standard payoff in the game then every equilibrium is stationary markov and induces the unique competitive price thus i demonstrate that aversion to complexity may provide a justification for the competitive outcome

a note on simple strategic bargaining for models of money or credit many papers on liquidity have bilateral trade with buyers constrained by their money holdings or debt limits axiomatic bargaining typically nash determines the terms of trade however there are reasons to prefer strategic bargaining i analyze a bargaining game that is useful in models of liquidity advantages include i it has simple microfoundations both in and out of steady state ii it is more tractable than nash but the outcomes share interesting features iii the benchmark version is consistent with axiomatic approaches in the literature while another version is not but can still be used and iv it is arguably realistic

screening in a matching market contract design under incomplete information is often analysed in a bilaterally monopolistic setting if the informed party s reservation value does not depend on its private information its type it is a standard result that the uninformed side offers low types distorted contracts to reduce the information rent left to high types we challenge this result by embedding contract design in a matching market environment we consider a market where players meet pairwise and where in each match either side may be chosen to make a take it or leave it offer as frictions become sufficiently low we find that the set of equilibria is independent of whether there is complete or incomplete information in particular all contracts are free of distortions

dynamic matching and bargaining games a general approach this paper presents a new characterization result for competitive allocations in quasilinear economies this result is informed by the analysis of non cooperative dynamic search and bargaining games such games provide models of decentralized markets with trading frictions a central objective of this literature is to investigate how equilibrium outcomes depend on the level of the frictions in particular does the trading outcome become walrasian when frictions become small existing specifications of such games provide divergent answers the characterization result is used to investigate what causes these differences and to generalize insights from the analysis of specific search and bargaining games

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

market power and information revelation in dynamic trading we study a strategic model of dynamic trading where agents are asymmetrically informed over common value sources of uncertainty there is a continuum of buyers and a finite number n of sellers all buyers are uninformed while at least one seller is privately informed about the true state of the world when n 1 full information revelation never occurs in equilibrium and the only information transmission happens in the first period with n 1 the outcome depends both on the structure of the sellers information and even more importantly on the intensity of competition allowed by the existing trading rules when there is intense competition absence of clienteles information is fully and immediately revealed to the buyers in every equilibrium for n large enough regardless of the number of informed sellers on the other hand for trading arrangements characterized by less intense forms of competition presence of clienteles for any n we always have equilibria where information is never fully revealed moreover in that case when only one seller is informed for many parameter configurations there are no equilibria with full information revelation even for large n jel c72 c78 d82 d83

property rights and the efficiency of bargaining we show that efficient bargaining is impossible for a wide class of economic settings and property rights these settings are characterized by i the existence of adverse efficient opt out types whose participation does not change the efficient allocation and who when they opt out are the worst type other agents can face and ii non existence of the marginal core and its multivaluedness with a positive probability we also examine the optimal allocation of property rights within a given class that satisfies i such as simple property rights liability rules and dual chooser rules we characterize property rights that minimize the expected subsidy required to implement efficiency with two agents simple property rights that are optimal in this way maximize the expected surplus at the status quo allocation but this no longer holds with more agents we also study second best budget balanced bargaining under a liability rule the optimal second best liability rule may differ from but is often close to the expectation of the victim s harm which would be optimal if there were no bargaining however liability rules that are close to a simple property right result in a lower expected surplus than the simple property right they are near

bargaining in dynamic markets abstract we study non stationary markets in which traders are randomly matched to bargain over the price of a heterogeneous good or the terms of a partnership the economy consists of a continuum of players drawn from a finite set of types players exogenously enter the market over time and exit upon trading at every date matching probabilities for each pair of types are determined by the endogenous distribution of trader types in the market the balance of bargaining power at any stage depends on variations in potential gains from trade the inflows of new traders the structure of agreements at future dates and the induced frequency of trading opportunities we establish that an equilibrium always exists moreover all equilibria that lead to the same evolution of the economy are payoff equivalent however we show that multiple self fulfilling expectations about the trajectory of the economy generating distinct equilibrium dynamics and payoffs may coexist

dynamic matching two sided incomplete information and participation costs existence and convergence to perfect competition consider a decentralized dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good time is discrete each period has length and each unit of time continuums of new buyers and sellers consider entry traders whose expected utility is negative choose not to enter within a period each buyer is matched anonymously with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs both the seller and the winning buyer exit the market with their realized utility traders who fail to trade continue in the market to be rematched we characterize the steady state equilibria that are perfect bayesian we show that as converges to zero equilibrium prices at which trades occur converge to the walrasian price and the realized allocations converge to the competitive allocation we also show the existence of equilibria for sufficiently small provided the discount rate is small relative to the participation

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

bilateral bargaining in networks abstract each connected pair of nodes in a network can jointly produce one unit of surplus a maximum number of linked nodes is selected in every period to bargain bilaterally over the division of the surplus according to the protocol proposed by rubinstein and wollinsky equilibrium in a market with sequential bargaining econometrica 53 1985 1133 1150 all pairs which reach an agreement obtain the discounted payoffs and are removed from the network this bargaining game has a unique subgame perfect equilibrium that induces the dulmage mendelsohn decomposition partition of the bipartite network of the set of nodes in this network

on countervailing incentives abstract this paper extends and unifies previous work on optimal contracts under countervailing incentives shedding light in particular on the relation between countervailing incentives and pooling inflexible rules our main result is that the nature of the optimal contract depends crucially on whether the agent s utility is quasiconcave or quasiconvex in the private parameter the optimal contract is separated in the former case and it may entail pooling in the latter case journal of economic literature classification number d82

search adverse selection and market clearing we examine a dynamic decentralized trading model with infinitesimal sellers and buyers to investigate whether or not the market fails to clear in the limit of search friction vanishing a seller who has private information about product quality and a buyer are matched to bargain over price they form a long term relationship if they reach agreement they return to the matching pool if they fail to agree or the existing relationship is dissolved the market fails to clear if and only if the ratio of agents patience over the dissolution rate exceeds a threshold

an empirical equilibrium model of a decentralized asset market i estimate a search and bargaining model of a decentralized market to quantify the effects of trading frictions on asset allocations and asset prices and to quantify the effects of intermediaries that facilitate trade using business aircraft data i find that relative to the walrasian benchmark 12 4 percent of the assets are misallocated and prices are approximately 27 3 percent lower dealers play an important role in reducing frictions in a market with no dealers 15 7 percent of the assets would be misallocated perhaps surprisingly in a market with no dealers prices would increase by 2 8 percent because sellers outside options improve relative to buyers thus counteracting the effects of higher search costs and slower trade on asset prices

information revelation in the property right theory of the firms abstract i incorporate revelation of asymmetric information through shared ownership partnership into the property right theory of the firms shared ownership is optimal as a joint result of mitigating hold up and inducing truthful information revelation due to the incomplete contracting nature shared ownership is incentive compatible if it induces truthful information revelation within the relationship as well as when the relationship breaks off the equilibrium path incentive compatibility results in the optimality of partnership even for the most efficient type of the informed party inefficient investment thus arises the level of shared ownership depends on the relative magnitude of the information rent effect and the hold up effect shared ownership is robust to semi truthful information revelation under which hold up occurs in equilibrium with an endogenously determined probability related to the revelation strategy

bargaining dynamics in exchange networks abstract we consider a one sided assignment market or exchange network with transferable utility and the dynamics of bargaining in such a market our dynamical model is local involving iterative updates of offers based on estimated best alternative matches in the spirit of pairwise nash bargaining agents are not strategic in our model we establish that when a balanced outcome a generalization of the pairwise nash bargaining solution to networks exists our dynamics converges rapidly to such an outcome

the association between trading recommendations and broker analysts earnings forecasts this study examines analyst forecast errors within the context of stock recommendations we predict positive forecast error i e optimism for buy recommendations and negative forecast error i e pessimism for sell recommendations we offer two explanations for this prediction 1 the unconscious tendency to process information in a manner that supports one s goal which we refer to as the objectivity illusion hypothesis and 2 the economic incentive to boost trade which we refer to as the trade boosting hypothesis the pattern of analyst forecast bias we predict i e optimism for buys and pessimism for sells is opposite in direction to that predicted by the management relations hypothesis a commonly cited hypothesis for analyst forecast bias we find broker analyst earnings forecast errors are significantly optimistic for buy recommendations and significantly pessimistic for sell

price dispersion in stationary networked markets abstract different sellers often sell the same good at different prices using a strategic bargaining model i characterize how the equilibrium prices of a good depend on the interaction between its sellers costs its buyers values and a network capturing various frictions associated with trading it in contrast to the standard random matching model of bargaining in stationary markets i allow agents to strategically choose whom to make offers to which qualitatively changes how the network shapes prices as in the random matching model the market decomposes into different submarkets and in the limit as bargaining frictions vanish the law of one price holds within but not across them but strategic choice of partners changes both how the market decomposes into different submarkets and the determinants of each submarket s price

pretrial bargaining and the design of fee shifting rules legal rules for allocating the private costs of civil litigation or fee shifting rules provide powerful incentives for settlement within the context of a direct revelation mechanism the fee shifting rule that generates the highest probability of settlement bases the allocation of costs upon the proximity of the court s award to the pretrial announcements this mechanism resembles rule 68 of the federal rules of civil procedure and other offer based rules in a simple extensive form game if the litigants have asymmetric information about the level of damages probability of prevailing then rule 68 increases decreases the settlement rate

markov equilibria in dynamic matching and bargaining games abstract rubinstein and wolinsky rev econ stud 57 1990 63 show that a simple homogeneous market with exogenous matching has a continuum of non competitive perfect equilibria however the unique markov perfect equilibrium of this model is competitive by contrast in the more general case of heterogeneous markets even the markov property is not enough to guarantee the perfectly competitive outcome we define a market game that allows for heterogeneous values on both sides of the market and exhibit a number of examples of non competitive markov perfect equilibria with and without discounting unlike the homogeneous case these equilibria allow for inefficient trades and for trade at non uniform prices the non competitive equilibrium may be unique

delay in trade networks we study decentralized markets involving producers and consumers that are facilitated by middlemen we do this by analyzing a noncooperative networked bargaining game we assume a complete information setup wherein all the agents know the structure of the network the values of the consumers and the transaction costs involved but allow for some search friction when either producers or consumers trade with middlemen in such a setting we show that sunk cost problems and a heterogeneous network can give rise to delay or failure in negotiation and therefore reduce the total trade capacity of the network in the limiting regime of extremely patient agents we provide a sharp characterization of the trade pattern and the segmentation of these markets

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

the role of private information in dynamic matching and bargaining can it be good for efficiency abstract we consider a private information replica of the dynamic matching and bargaining model of mortensen and wright 2002 we find that private information typically deters entry but the welfare can actually be higher under private information

resale markets and the assignment of property rights the consumption of an indivisible good causes identity dependent externalities to non consumers we analyse resale markets where the current owner designs the trading procedure but cannot commit to future actions we ask the following questions 1 doer the identity of the initial owner matter for the determination of the final consumer 2 is the outcome always efficient the major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency this result complements the coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency

walras retrouve decentralized trading mechanisms and the competitive price we extend the standard analysis of decentralized markets to allow for the possibility that traders interact simultaneously with more than one trader on the opposite side of the market in contrast with the literature we reconcile the walrasian equilibrium with the outcome of decentralized strategic trade we show that there exist generic matching technologies that determine local market conditions such that as market frictions vanish the equilibrium price is the one that would result in the static walrasian market our analysis highlights the importance of local market conditions for the determination of equilibrium prices

bargaining in stationary networks we study an infinite horizon game in which pairs of players con nected in a network are randomly matched to bargain players who reach agreement are replaced by new players at the same positions in the network we show that all equilibria are payoff equivalent the payoffs and the set of agreement links converge as players become patient several new concepts mutually estranged sets partners and shortage ratios provide insights into the relative strengths of the positions in the network we develop a procedure to deter mine the limit equilibrium payoffs for all players characterizations of equitable and nondiscriminatory networks are also obtained jel c78 d85 competitive equilibrium theory assumes large and anonymous markets in which every buyer can trade with every seller underlying these assumptions are standard goods and services that may be traded at low transaction costs by agents who are not in specific relationships with one another however in many markets goods and services are heterogeneous e g cars apartments or need to be tailored to particular needs e g manufacturing inputs technical support furthermore trad ing opportunities may depend on transportation costs social relationships infor mation advertising trust technological compatibility joint business opportunities free trade agreements etc in such cases it is natural to model the market using a network where only pairs of connected agents may engage in exchange new theories are needed to explore the influence of the network structure on market outcomes many questions arise how does an agent s position in the net work determine his bargaining power and the local prices he faces who trades with whom and on what terms when are prices uniform in the network one possible conjecture is that an agent s bargaining power is determined by his relative number of connections in the network however this simple theory is implausible consider the network of four sellers located at the top nodes and nine buyers located at the bottom nodes depicted in figure 1 assume that each seller supplies one unit of a homogeneous indivisible good each buyer demands one unit of the good and all buyers have identical values for the good the buyer located in the middle has the largest number of links in the network as he is connected to each

bilateral trading and incomplete information price convergence in a small market abstract we study a model of decentralised bilateral interactions in a small market where one of the sellers has private information about her value in addition to this seller with private information there are two identical buyers and another seller whose valuation is commonly known to be in between the two possible valuations of the seller with private information we consider an infinite horizon game with simultaneous one sided offers and simultaneous responses we construct one particular pbe of the game and show that as the discount factor goes to 1 prices in all transactions converge to the same value we then show that this is the case with any stationary equilibrium of the game that is the asymptotic outcome is unique across all stationary equilibria

learning and price discovery in a search market we introduce learning into an otherwise standard two sided search and bargaining market there is uncertainty about the price distribution due to uncertainty about an underlying exogenous state of relative demand in the high state buyers are on the long side otherwise they are on the short side in equilibrium prices are on average higher in the high state individual agents learn about the distribution while searching agents typically start out by experimenting with a tough bargaining position buyers may initially insist on a low price and sellers on a high price after successive failures to trade agents become increasingly pessimistic about the market conditions and soften their bargaining stance when frictions are small equilibrium transaction prices are approximately market clearing despite aggregate demand being unknown thus the search and bargaining procedure enables price discovery in a decentralized market

efficiency of simultaneous search this paper presents an equilibrium labor search model in which workers can simultaneously apply to multiple firms to increase their search intensity they observe firms wage postings before choosing where to apply owing to coordination frictions a firm may not receive any applications otherwise it is able to hire unless all its applicants have better offers it is shown that the equilibrium converges to the efficient walrasian outcome as application costs vanish even for nonnegligible application costs the entry of firms the search intensity and the number of filled vacancies are constrained efficient wage dispersion is essential for constrained efficiency

search with adverse selection this paper analyzes a sequential search model with adverse selection we study information aggregation by the price how close the equilibrium prices are to the full information prices when search frictions are small we identify circumstances under which prices fail to aggregate information well even when search frictions are small we trace this to a strong form of the winner s curse that is present in the sequential search model the failure of information aggregation may result in inefficient allocations

partnership dissolution with interdependent values we study partnership dissolution when valuations are interdependent and only one party is informed in contrast with the case of private values cramton gibbons and klemperer 1987 in which efficient trade is feasible whenever initial shares are about equal there exists a wide class of situations in which full efficiency cannot be reached in these cases i the subsidy required to restore the first best is minimal when the entire ownership is allocated initially to one of the parties and ii ruling out external subsidies the second best welfare is maximized when one of the parties initially has full ownership

dynamic markets with competitive bidding the model features a dynamic market in steady state in which prices are determined in first price auctions it combines competition over time familiar from the pairwise meeting models with instantaneous bidding competition it inquires how different properties of the model determine the relative importance of these two aspects of the competition and in particular how the non market clearing price result of the matching and bargaining models is affected by the

a decentralized market with common values uncertainty non steady states we analyse a market where i trade proceeds by random and anonymous pairwise meetings with bargaining ii agents are asymmetrically informed about the value of the traded good and iii no new entrants are allowed once the market is open we show that information revelation and efficiency never obtain in equilibrium even as discounting is removed this holds whether the asymmetry is two sided or one sided in some cases there exist equilibria where a substantial amount goes untraded this contrasts with the earlier literature which was based on the steadystate equilibria of a model where agents enter the market every period

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

mobility costs frictional unemployment and efficiency with imperfect job information flows it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed with word of mouth communication this condition is derived given this condition steady state equilibrium is not efficient with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral in this way workers become more selective in the jobs they accept

decentralized trading with private information the paper studies how asset prices are determined in a decentralized market with asymmetric information about asset values we consider an economy in which a large number of agents trade two assets in bilateral meetings a fraction of the agents has private information about the asset values we show that over time uninformed agents can elicit information from their trading partners by making small offers this form of experimentation allows the uninformed agents to acquire information as long as there are potential gains from trade in the economy as a consequence the economy converges to a pareto efficient allocation

foundation of competitive equilibrium with non transferable utility abstract this paper investigates the dynamic foundation of a competitive equilibrium studying a sequence of random matching models between ex ante heterogeneous buyers and sellers under two sided incomplete information with no entry where each agent is endowed with non transferable utility the economy is populated with two sets of infinitesimal agents buyers and sellers who have private information about their own valuations of the object in each period buyers and sellers in the pool are matched to draw randomly a pair of expected payoffs which will realize if the long term relationship is formed each player decides whether or not to agree to form a long term relationship conditioned on his private information if both parties agree then they leave the pool receiving the expected payoff in each period while the long term relationship continues the existing long term relationship is terminated either by will or by a random shock upon which both parties return to the respective pools of agents we quantify the amount of friction by the time span of each period we demonstrate that as the friction vanishes any sequence of stationary equilibrium outcomes in which trade occurs with a positive probability converges to the competitive equilibrium under a general two sided incomplete information about the private valuation of each agent

stable marriages and search frictions stable matchings are the primary solution concept for two sided matching markets with nontransferable utility we investigate the strategic foundations of stability in a decentralized matching market towards this end we embed the standard marriage markets in a search model with random meetings we study the limit of steady state equilibria as exogenous frictions vanish the main result is that convergence of equilibrium matchings to stable matchings is guaranteed if and only if there is a unique stable matching in the underlying marriage market whenever there are multiple stable matchings sequences of equilibrium matchings converging to unstable inefficient matchings can be constructed thus vanishing frictions do not guarantee the stability and efficiency of decentralized marriage markets

asymmetric information in bilateral trade and in markets an inversion result abstract i consider bilateral trade between a seller and a buyer with private valuations the seller makes a take it or leave it price offer if the seller observes the buyer s valuation symmetric information bilateral trade is trivially efficient if the seller cannot observe the valuation asymmetric information bilateral trade is inefficient this bilateral trading game is embedded into a large matching market in the steady state equilibrium of the market game the relation between the informational regime and efficiency is inverted with small frictions efficiency obtains if information is asymmetric if information is symmetric however the trading outcome can be very inefficient even if frictions vanish