Journal Article

Efficient Sorting in a Dynamic Adverse-Selection Model

Igal Hendel, Alessandro Lizzeri and Marciano Siniscalchi

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 72, issue 2, pages 467-497
Published in print April 2005 | ISSN: 0034-6527
Published online April 2005 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2005.00340.x
Efficient Sorting in a Dynamic Adverse-Selection Model

More Like This

Show all results sharing these subjects:

  • Information, Knowledge, and Uncertainy
  • Market Structure, Firm Strategy, and Market Performance

GO

Show Summary Details

Preview

We discuss a class of markets for durable goods where efficiency (or approximate efficiency) is obtained despite the presence of information asymmetries. In the model, the number of times a good has changed hands (the vintage of the good) is an accurate signal of its quality, each consumer self-selects into obtaining the vintage that the social planner would have assigned to her, and consumers' equilibrium trading behaviour in secondary markets is not subject to adverse selection. We show that producers have the incentive to choose contracts that lead to the efficient allocation, and to supply the efficient output. We also provide a contrast between leasing contracts, resale contracts, and different kinds of rental contracts. Resale contracts do not lead to the efficient allocation. A specific kind of rental contract provides the appropriate incentives to consumers.

Keywords: D82; L15

Journal Article.  17147 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Market Structure, Firm Strategy, and Market Performance

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.