Trading dynamics in decentralized markets with adverse selection

  title={Trading dynamics in decentralized markets with adverse selection},
  author={Braz Camargo and Benjamin Lester},
  journal={J. Economic Theory},
We study a dynamic, decentralized market environment with asymmetric information and interdependent values between buyers and sellers, and characterize the complete set of equilibria. The model delivers a stark relationship between the severity of the information frictions and the time it takes for the market to clear, or market liquidity. We use this framework to understand how asymmetric information has contributed to the “frozen” credit market at the core of the current financial crisis, and… CONTINUE READING
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