ABSTRACT We study market dynamics when an owner learns about the quality of her asset over time. Since this information is private, the owner sells strategically to a less informed buyer following sufficient negative information. In response, market prices feature a “U‐shape” and trading probabilities a “hump‐shape” with respect to the time to sale. As the owner initially acquires greater information, buyers suffer greater adverse selection, and prices fall accordingly. Eventually, the probability of an informed sale shrinks, and prices rebound. We provide evidence consistent with our model in markets for residential real estate, venture capital investments, and construction equipment.

We study joint financing between profit-motivated and socially motivated (impact) investors and derive conditions under which impact investments improve social outcomes. When project owners cannot commit to social objectives, impact investors hold financial claims to counterbalance owners’ tendencies to overemphasize profits. Impact investors’ ownership stakes are higher when the value of social output is higher, and pure nonprofit status may be optimal for the highest valued social projects. We provide guidance about the design of contingent social contracts, such as social impact bonds and social impact guarantees.Received May 23, 2016; editorial decision April 28, 2018 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

ABSTRACT We analyze a setting in which a board must hire a chief executive officer (CEO) after exerting effort to learn about the quality of each candidate. Optimal effort is asymmetric, implying asymmetric likelihoods of each candidate being chosen. If the board has an infinitesimal bias in favor of one candidate, it allocates effort to maximize the likelihood of that candidate being chosen. Even when the board's prior is that its preferred candidate is inferior, she may still be chosen most often. A glass ceiling can also arise whereby the tendency to hire favored candidates increases as the importance of the position increases.