Adverse selection in dynamic matching markets

Klaus Kalervo Kultti, Eeva Mauring, Juuso Petteri Vanhala, Timo Juhani Vesala

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We study the Akerlofian adverse selection problem in a dynamic matching model where the competitive situation varies across different meetings. The lemons principle' is shown to limit the high quality sales within a wider range of quality distributions than in the Walrasian benchmark. High quality goods can nevertheless be traded, albeit less frequently than the low quality goods. For certain quality distributions, there exists a partially pooling' steady state where high quality sellers are active whenever at least two buyers compete for the good. Otherwise, the model features cycles in a sense that high quality goods are traded only in non-consecutive periods.
Original languageEnglish
JournalBulletin of Economic Research
Volume67
Issue number2
Pages (from-to)115-133
Number of pages19
ISSN0307-3378
DOIs
Publication statusPublished - 2015
MoE publication typeA1 Journal article-refereed

Fields of Science

  • 511 Economics

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