Working Paper: CEPR ID: DP18391
Authors: Maarten Janssen; Santanu Roy
Abstract: In a market where buyers and sellers are uncertain about whether others are informed about the quality of an asset, inefficiency in trading arises due to incomplete learning. An uninformed seller will want to learn the asset's quality from the buyers' bids and may be willing to sell at low, but not at intermediate bids. Buyers may have incentives to pool their bids to prevent this type of learning. We outline conditions under which potential gains from trade cannot be realized in states where all traders are symmetrically informed or symmetrically uninformed.
Keywords: Information Uncertainty; Asymmetric Information; Product Quality; Market Breakdown
JEL Codes: L13; L15; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information uncertainty (D80) | trade inefficiencies (F14) |
| incomplete learning (D52) | market failure (D52) |
| uninformed sellers' beliefs adjust based on buyers' bids (D44) | incentives to learn about asset quality (G51) |
| pooling equilibria (D51) | prevent trade from occurring (F13) |
| buyers concealing information (D82) | exacerbation of inefficiencies (D61) |