Dynamic markets for lemons: Performance, liquidity, and policy intervention

Diego Moreno, John Wooders
2016 Theoretical Economics  
Even%though%adverse%selection%pervades%markets%for%real%goods%and%financial%assets,% equilibrium%in%such%markets%is%not%well%understood.%What%are%the%properties%of%equilibrium% in%dynamic%markets%for%lemons?%What%determines%the%liquidity%of%a%good?%Which%market% structures%perform%better,%decentralized%ones,%in%which%trade%is%bilateral%and%prices%are% negotiated,%or%centralized%ones,%in%which%trade%is%multilateral%and%agents%are%price?takers?%Is%
more » ... %that%when%the%horizon%is%finite%and% frictions%are%small,%decentralized%markets%are%more%liquid%and%perform%better%than% centralized%markets.%Moreover,%the%surplus%realized%is%above%the%static%competitive%surplus,% and%decreases%as%the%horizon%grows%larger,%approaching%the%static%competitive%surplus%as%the% horizon%becomes%infinite%even%if%frictions%are%non?negligible.%Subsidies%on%low%quality%or% taxes%on%high%quality%raise%surplus.%
doi:10.3982/te1631 fatcat:tgvcraxzdfhrzkuuofp6jwcqvm