On the failure of the linkage principle with financially constrained bidders

@article{Fang2003OnTF,
  title={On the failure of the linkage principle with financially constrained bidders},
  author={Hanming Fang and S{\'e}rgio O. Parreiras},
  journal={J. Economic Theory},
  year={2003},
  volume={110},
  pages={374-392}
}
The linkage principle may fail when bidders are financially constrained. The intuition is as follows. In the presence of financial constraints, the bidders’ upward response to seller’s good signals is limited by the financial constraints, while their downward response to bad signals is not. An explicit example is provided. ∗We are grateful to George Mailath, Steven Matthews, Steven Morris, Nicola Persico and seminar participants at UBC, Pennsylvania and Yale for useful comments and suggestions… CONTINUE READING
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